PORTLAND, Ore. — IRS Direct File, the Internal Revenue Service's free alternative to tax preparation software like TurboTax, will be available in Oregon starting with next year's tax filing season, Sen. Ron Wyden and U.S. Treasury Secretary Janet Yellen confirmed Tuesday.
The new program, in conjunction with the Direct File Oregon program that launched this year, will give Oregonians a way to file both their federal and state taxes for free. Unlike existing free offerings such as the IRS Free File program, access to IRS Direct File and Direct File Oregon is not restricted to taxpayers below a specific income.
"This is a good day for Oregon taxpayers who are tired of getting ripped off by the big tax companies year after year," Wyden said, casting the rollout as a victory over longtime opposition from commercial tax preparation companies.
He condemned the fees that commercial tax preparation platforms tend to change their users, and referenced a recent discovery that a TurboTax software error may have caused about 12,000 Oregonians to overpay their state taxes by selecting the wrong deduction option.
IRS Direct File launched in 12 states this year as a pilot program, and the IRS announced last month that it would make the program available nationwide next year. Officials said on Tuesday that all 50 states have been invited to participate, but it's up to individual states whether to accept.
Oregonians who made less than the federal cutoff of $79,000 were technically already able to file both their federal and state taxes for free this year, but the process was cumbersome because they couldn't access IRS Direct File. Instead, they had to first use one of the IRS Free File partner programs to file their federal tax returns, then manually plug their federal information into Direct Fire Oregon to file their state returns.
The process next year should be a lot more seamless, officials said. IRS Direct File and Direct File Oregon are still separate programs, but they're designed to talk to each other; users who complete the federal process through IRS Direct File will receive a link at the end to Direct File Oregon, where they'll be able to import all of their relevant federal information.
There are limits to both programs; IRS Direct File and Direct File Oregon will support basic income scenarios and common tax credits like the federal Earned Income Tax Credit and the Oregon Kids Credit, Yellen said, but some filers with more complicated income or deduction situations may fall outside of what the programs can cover.
The exact scope of tax situations that will be covered by the federal program for next year is still being finalized, but officials said the IRS intends to expand the program's functionality to cover most common tax situations over the next few years.
Wyden said he's pushed for the IRS to create free alternative tax software for years, but previous attempts at congressional action ran into opposition from commercial tax software providers. Funding for the program finally got through as part of the Inflation Reduction Act, he said, but it still faces the risk of a rollback; House Republicans proposed a funding bill earlier this month that would defund the program before it can expand.