OKPOLICY.ORG
Filing taxes can be expensive, difficult, and time-consuming. Some people file their taxes themselves, while others pay a tax preparer. However, most people use paid tax preparation software like TurboTax. The IRS Direct File program aims to change that by providing a free, accessible, and quick option to file federal taxes. It could even make filing state taxes easier. The state of Oklahoma can easily opt in to Direct File for the 2025 tax season. Oklahoma should offer taxpayers free and easy filing by integrating our state online tax filing tool, OkTAP, with IRS Direct File.
IRS Direct File prioritizes taxpayers and their savings
With the Direct File program, the IRS aims to provide a free and easy tax filing service. Nationally, tax preparation costs an average of $250 for a paid preparer or $100 annually for online self-prep services. On average, it can take between nine to 24 hours to complete. With Direct File, tax preparation and filing is free. If Oklahoma opts in to this program, it could save Oklahoma taxpayers $96.5 million dollars in filing fees alone.
Another way Direct File saves taxpayers money is by making sure more taxpayers claim the federal tax credits for which they qualify. These tax credits include the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). In Oklahoma alone, almost a quarter of eligible taxpayers did not claim the federal EITC in 2020. Direct File would close this gap by removing the burdens: making it free and simple – and eventually – virtually automatic, delivering between $55.5 to $142 million annually in unclaimed federal tax credits to Oklahomans. That is money that could benefit low-income households, improve Oklahoma’s local economy, and enhance children’s health and well-being.
IRS Direct file is easy, accessible, and free
Direct File began as a pilot program in 12 states in 2024. The pilot program had high satisfaction amongst filers, with more than 9 in 10 respondents ranking their overall experience as excellent or above average.
Source: IRS, 2024
Direct File has been a long time coming. In 2000, the Bush administration entered into the Free File Alliance agreement with nascent tax preparation software companies. Private companies like Intuit and H&R Block agreed to provide a free federal tax filing option (without advertisements and add-on solicitations) to people earning under a certain income threshold as long as the IRS committed to not developing its own free online filing program.
However, those companies significantly and intentionally limited access to their Free File software. Tactics were implemented to make their Free File software inaccessible like adding code to the Free File landing page of TurboTax that prevented it from showing up in search engines, using design tricks on their website to make people pay for upgrades, or tricking people into believing TurboTax was free. These gimmicks led to only 2.4 percent of eligible taxpayers using the Free File program in 2018. Each year, $13 billion in tax refunds go to paying for tax preparation services by 87 million taxpayers who are eligible for Free File but unable to access it.
In 2024, the IRS stepped up and created Direct File to provide taxpayers with services they didn’t get from the companies. Now, the program is expanding, despite private tax preparation companies spending millions of dollars lobbying against the IRS’s efforts. All 50 states can opt in to Direct File; Oklahoma has yet to do so. Opting in to the program can be done administratively and at relatively little cost.
Direct File can make state tax filing easier too
Opting in to Direct File will make filing federal and state taxes in Oklahoma seamless while improving tax collection.
Four of the Direct File pilot states collected state income taxes – Arizona, California, New York, and Massachusetts. In those states, most taxpayers chose to transfer their federal tax return data to a state tool to complete their tax return. In some states, more than 90 percent of filers did so. The ease of data sharing between Direct File and state e-file systems indicates the potential for streamlining state tax filings in Oklahoma. Oklahoma already has a free state tax filing software called OkTAP. If Oklahoma were to opt in to the Direct File program, it could connect its existing online state tax filing platform to the federal Direct File program via an integration tool. This integration between state and federal online tax filings can be done relatively easily. For example, the non-profit Code for America developed an integration tool allowing its partner states to quickly and inexpensively create a seamless tax filing system for state and federal tax preparation. Since Oklahoma already has OkTAP, integration should be much easier for Oklahoma to implement.
Some opponents have criticized the Direct File program saying it would confuse taxpayers into only filing federal returns and not their state returns. Linking the federal Direct File tool to the state’s free tax filing software would remove any potential concerns for this confusion because tax filers would be prompted to the state tool. Opponents have also argued that opting in to Direct File would take away jobs from local tax preparers. In reality, Direct File aims to serve taxpayers who have relatively straightforward tax filing situations. It would be one of many available tax filing options. If more taxpayers could utilize these free tax preparation services, it would create a more competitive and equitable market, which has been dominated by a paid tax preparation industry with a long history of targeting Black and working-class families. Additionally, filers who have more complex tax filing needs would still require the assistance of tax preparers or other commercial tax filing software.
Direct File, not tax cuts, will actually put money back into the hands of Oklahomans
Many elected officials claim income tax cuts give money back to low- and moderate-income households. In Oklahoma, however, the reality is two decades of non-targeted tax cuts have largely benefitted the wealthy and out-of-state corporations. Meanwhile, the lost revenue has reduced funding for shared services like public education, public safety, and healthcare.
Direct File could save low- and middle-income Oklahomans the same amount or more money than income tax cuts pushed by elected officials in recent years. For instance, a 0.25% income tax cut in 2023 would have only saved low-income households about $19 and middle-income taxpayers $92 annually. These tax savings are less than the $100 to $250 in tax preparation fees most low-and-middle income taxpayers would save if the state opted into the Direct File program. In addition, tax filers would save an average of four hours filing with Direct File, while ensuring they receive all the tax credits they are eligible for. Accounting for all these benefits, Direct File could deliver a combined $231.6 million in total value to Oklahoma taxpayers each year.
If leaders in Oklahoma want to deliver targeted savings to everyday Oklahomans, the state should opt in to the Direct File program. Doing so would save state taxpayers hundreds of dollars annually through reduced tax preparation costs while also ensuring they received all the tax credits they qualify for.
