Don't Mess With Taxes

Has your state joined Direct File? Check out this special Direct File 2025 Participating States page.

Maryland, where the hubby and I spent our first married years, is our adopted second home. It's also home of wildlife areas like the Jug Bay tidal wetlands pictured above that we frequently visited to watch birds and wildlife. Now, the Old Line State also will be part of the IRS Direct File program. (Photo of Jug Bay Wetlands Sanctuary by Kevans27 via Wikipedia Commons)

The Internal Revenue Service continues to make progress in getting states to sign up for Direct File, the agency’s free online tax preparation and electronic filing program.

Maryland is the latest that will allow some of its taxpayers access to Direct File for the 2025 tax filing season.

The more than 700,000 Old Line State taxpayers will join their counterparts in Connecticut, New Jersey, New Mexico, North Carolina, Maine, Oregon, Pennsylvania, and Wisconsin.

Direct File was kicked off this filing season as a pilot program in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Shortly after Tax Day, Treasury and the IRS cited the program’s success and positive reception by users in the dozen test states. Federal tax officials then announced Direct File would be a permanent no-cost tax prep and filing option going forward.

And they invited the tax departments in the remaining states to join. With Maryland’s “yes” R.S.V.P., there will be 21 states whose taxpayers will be able to use Direct File next year.

Direct File pro: As has been the case with previous newcomers to the Direct File program, Maryland leaders lauded the option.

“Today, we take a big step forward to make tax season easier, simpler, and more affordable for all Marylanders,” said Maryland’s Democratic Gov. Wes Moore. “This program has saved Americans millions of dollars in tax filing fees, and it’s going to deliver big results for the people of Maryland. Together, we will leave no one behind.”

Maryland’s senior U.S. Sen. Ben Cardin, also a Democrat and a member of Senate Finance Committee, echoed the governor’s comments.

“Tax preparation for the average working American can come with high costs and countless hours filing returns. Fulfilling tax obligations shouldn’t be more difficult than the hours you spend working,” said Cardin. “Direct File was extremely successful in making tax filing more affordable and accessible. Implementing a permanent Direct File program in Maryland will help lift a significant tax burden and benefit thousands of Maryland taxpayers.”

And since Maryland collects state (and local) income taxes, state officials also must work with the IRS and Direct File to facilitate the combined filings.

“Partnering with the IRS to offer Direct File to eligible Maryland taxpayers in the 2025 tax season is an exciting opportunity and fundamental to our core priority of modernizing our agency to make government work better for all Marylanders,” said.

“In countries across the globe, residents enjoy much simpler return-free tax systems. While our state and nation are not there yet, with Direct File and our agency’s new Maryland Tax Connect system for individuals coming this term, Maryland will have the most transparent, efficient, and modern system in the nation,” said Maryland Comptroller Brooke E. Lierman.

Direct File con: I note the lawmakers political affiliation since the program was made possible via the Inflation Reduction Act, the Biden Administration’s wide-ranging 2022 law that included substantial additional funding for the IRS. The bill passed by a narrow, party-line vote.

Some Capitol Hill Republicans have softened their views on certain Inflation Reduction Act components, there’s still widespread hostility toward the IRS money in general and Direct File in particular.

Those anti-Direct File lawmakers, as well as several private sector tax organizations, object to not on the fiscal ramifications, but also view the program as an example of government overreach into individual citizens private and tax lives.

GOP leaders have indicated that, if they regain control of the House, Senate, and White House, they will kill Direct File. However, the longer that takes, and the more states that join the program, could make that goal more difficult.

Limited availability for now: As with the prior participants, Direct File will only work for certain filers in each state. In Maryland’s case, that just 700,000 of its approximately 3.5 million taxpayers.

The low participation potential is because the current version of Direct File is designed for taxpayers who have relatively uncomplicated filing needs.

As noted in my Direct File pilot post back in early January, the program is available only to taxpayers who have wage or salary income.

Basically, the IRS wants to be able to double check a filer’s reported earnings via their corresponding Form W-2 submitted by their employers. That leaves those with gig or other self-employment income out of the Direct File loop (for now).

However, a handful of other types of earnings where the IRS receives third-party documentation analogous to a W-2 are allowed for Direct File users. This includes income from —

• Social Security and Railroad Retirement income, reported on SSA-1099 or RRB-1099, respectively;
• Unemployment compensation, reported on 1099-G; and/or
• Interest income of $1,500 or less, reported on 1099-INT.

Direct File taxpayers cannot itemize. They must claim the standard deduction. But Direct File taxpayers are allowed to claim some above-the-line deductions, including the $2,500 tax break for student loan interest and/or the $300 educator expenses claim.

And eligible Direct Filers also can claim a few tax credits. They are the Earned Income Tax Credit (EITC), the Child Tax Credit, and the Credit for Other Dependents.

Tracking Direct File members: Since there appears to be a steady, albeit slow, stream of Direct File participants, I’ve created a special page to track additions.

So, instead of a new story that, let’s be honest, keeps repeating much of the same information, for each state that subsequently joins, I’ll add the state and its specifics to the ol’ blog’s Direct File 2025 State Participants page.

Production note: I'll get to work on this page as soon as I post this Maryland Direct File item.

UPDATE, Sept. 5, 2024: As the note at the top of this post indicates, the Direct File 2025 Participating States page is now published.

I will, however, note on the ol’ blog that’s there a new addition to the page so interested and/or affected readers will know if/when their state joins Direct File. And, of course, I’ll announce the addition on (some of) my (too many) social media accounts.

You also might find these items of interest:

• 6 family-friendly tax credits
• 6 tax credits for lower-to-middle income taxpayers
• 8 reasons to file a federal tax return, even if the IRS doesn't require it

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