IRS Direct File is Expanding in 2025, But Still Falls Short for Most

The IRS just announced that its free-filing tax software, IRS Direct File, will be expanding its pilot launch in 2025 (for filing 2024 tax returns) to 12 new states. Direct File originally launched in 12 states in 2024 to individuals with basic tax filing scenarios, bringing the total states eligible to 24 in 2025. Due to its limitations at launch (see my full IRS Direct File review), I recommended that most taxpayers skip using IRS Direct File at the time. Unfortunately, even with 24 states now in the pilot and expanded tax scenarios covered, my recommendation has not changed. I’ll discuss who the pilot is expanding to and why I think it still falls short of being a legitimate tax filing option for most tax filers.

What States are eligible for IRS Direct File in 2025?

During the 2024 Direct File launch, tax filers from the following 12 states were eligible to use it:

1. Arizona
2. California
3. Florida
4. Massachusetts
5. Nevada
6. New Hampshire
7. New York
8. South Dakota
9. Tennessee
10. Texas
11. Washington state
12. Wyoming

In addition to those 12 states, in 2025, tax filers from the following states will also be eligible to use Direct File:

1. Alaska
2. Connecticut
3. Idaho
4. Kansas
5. Maine
6. Maryland
7. New Jersey
8. New Mexico
9. North Carolina
10. Oregon
11. Pennsylvania
12. Wisconsin

In order to use Direct File, you must have lived in one of these 24 states for the entire year.

New Tax Scenarios Covered by IRS Direct File in 2025

In addition to the state expansions, the Direct File program will cover more tax scenarios that weren’t previously covered for 2024. For the 2025 filing season, IRS Direct File will now also cover:

• 1099’s for interest income greater than $1,500
• Retirement income
• 1099 for Alaska residents reporting the Alaska Permanent Fund dividend
• Child and Dependent Care Credit
• Premium Tax Credit
• Credit for the Elderly and Disabled
• Retirement Savings Contribution Credits (aka the Saver’s Tax Credit)
• Deductions for Health Savings Accounts

What is Still Not Covered by Direct File in 2025

The following tax scenarios are still not covered by IRS Direct File in 2025:

• Itemized Deductions
• Income sources not explicitly stated as covered, including gig economy, rental or business income

For reference, the following income sources are stated as covered:

• W-2 wage income
• SSA-1099 Social Security income
• 1099-G unemployment compensation
• 1099-INT interest income
• 1099- R retirement income
• 1099-MISC for Alaska residents reporting the Alaska Permanent Fund Dividend

It’s not explicitly stated whether the Clean Vehicle Tax Credit or the new home energy tax credits and rebates are covered – so, it is likely that they are not.

Who Should (and Shouldn’t) Use IRS Direct File in 2025?

I am glad that the IRS is expanding Direct File moving forward, and look forward to the day when all income, credit/deduction, and other taxpayer scenarios are covered, without question. In May, the IRS announced that IRS Direct File will be extended “permanently” (their words) – so it seems that they are moving in that direction.

However, aside from not covering all income and credit/deduction scenarios – there’s still one massive downside to IRS Direct File for 2025 and beyond: state tax filing integration. Direct File only covers your federal tax filing. 43 states require a state income tax filing, and as of right now, you must re-enter all of your tax information for those state returns. Individuals with simple returns that live in one of the 7 no income-tax states that are covered by Direct File – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming – are in the sweet spot (and it appears that Arizona, California, Massachusetts, New York, and Washington have some level of filing integration). Otherwise, you’d be re-entering all of your information and filing twice – once with Direct File and once with your state, if your state is even among the 24 states covered for 2025.

Beyond goodwill as an incentive, hoping that your entire tax situation is covered in the software and having to file twice seems like too much of a burden to be worth the time and effort. For individuals with simple returns in the 12 states with state filing integration or no income tax – IRS Direct File might be worth checking out. For individuals in the other 38 states, it still seems like a pass for 2025.