What to know about Direct File, and what it means for Pennsylvania taxpayers

A new program that aims to make paying taxes easier and more affordable is coming to Pennsylvania.

Gov. Josh Shapiro announced on Tuesday that Pennsylvania is opting into the Internal Revenue Service’s Direct File program, a free online platform to file federal taxes. Standing alongside U.S. Treasury Secretary Janet Yellen in Philadelphia on Tuesday, he called the tool a “game changer.”

The tax filing option will be available to Pennsylvanians for the 2025 tax season. Here’s what to know.

Direct File started as a pilot program across a dozen states during the 2024 filing season, and more than 140,000 taxpayers with simple tax situations participated. These taxpayers garnered $90 million in refunds and saved about $5.6 million in tax preparation fees, according to the treasury department.

They also saved time.

The average American spends $270 and 13 hours filing their taxes, according to the IRS Taxpayer Burden Survey. But as part of the Direct File pilot, the process typically took less than an hour, with many filing within 30 minutes, according to the IRS.

In a survey of more than 11,000 pilot participants, 90% said their experience was “excellent” or “above average.” They appreciated that they could save time, fix mistakes, and access customer service, and that there were no feed or upsells, Yellen said. Among the respondents, 47% paid to file their taxes the year prior and 16% did not file at all.

Since the pilot was deemed successful, the United States Treasury Department and IRS decided to make Direct File a permanent option for all states. Now, it’s up to the states whether to opt in to the program.

Pennsylvania is the third new state to join the program after Oregon last month and New Jersey last week.

Shapiro touted that “all Pennsylvanians will be eligible” for Direct File. However, not everyone will find it useful. The program will at least initially be for simple tax situations.

“As time goes on, the thought is that we’ll continue to build on it and it will have additional features in the future,” said Jeffrey Johnson, spokesperson for the Pennsylvania Department of Revenue.

The nuances of which situations will work with the program will be shared later in the year, Johnson said, but a wage-earner who receives a W-2 from one employer is someone who could benefit from the program, for example.

In Pennsylvania, at least 1.5 million taxpayers will be eligible to use the system, according to the federal treasury department.

Pennsylvanians have already been able to file state returns online for free through myPATH, which stands for “my Pennsylvania tax hub.” MyPATH can handle more complex tax situations than Direct File, Johnson said, but can’t handle every situation.

Taxpayers can only use Direct File for federal taxes, so Pennsylvania is collaborating with the IRS to streamline Direct File and myPATH.

While the details are still being ironed out, the plan is for taxpayers to be directed to myPATH once they’re done filling out Direct File. Information inputted into Direct File would be carried over to myPATH, to make the process “as seamless of a process as possible,” Johnson said.

Direct File similarly guided users to state-supported tools in four of the 12 states that participated in the pilot.

The program was created as a result of the 2022 Inflation Reduction Act (IRA), which required the IRS to study the possibility of a free tax filing program. The agency found there was a desire for the service and embarked on the pilot for the 2024 season.

The IRA also allocated $80 billion to fund the IRS across 10 years to help the agency improve taxpayer services, modernize its computer systems, support operations, and increase enforcement, particularly for large corporations and high-income individuals, in turn bringing in more revenue.

Yellen said taxpayers haven’t gotten the support they deserve because the agency has been underfunded, leaving people to pay private companies to prepare their taxes or missing tax credits they’re eligible for. She said that since getting more funding, the agency has decreased customer service call times from 20 minutes to around three minutes.

However, it’s unclear whether the funding will be sustained because of efforts to slash the agency’s budget. The Fiscal Responsibility Act of 2023 already rescinded $1.4 billion that was allocated to the agency through the IRA.

U.S. Rep. Brendan Boyle said Thursday that if Democrats regain control of the House and he chairs the Budget Committee, protecting programs like Direct File would be a priority.