Maryland joins IRS Direct File program, offering free tax filing for up to 700,000 taxpayers – Maryland Matters

Some Maryland taxpayers will be able to use a free electronic filing tool for their federal taxes rather than having to pay a tax preparer or buy tax-filing software next year, when Maryland will offer the IRS’s new Direct File service.

The service was tested in 12 states this year, where 140,803 people filed with Direct File, saving an estimated $5.6 million in tax preparation fees. Maryland Comptroller Brooke Lierman (D) estimated Wednesday that as many as 700,000 Maryland taxpayers could be eligible for the program when it debuts in the state next year.

“While we value our relationship with tax preparers and CPAs (certified public accountants), it’s unacceptable that Marylanders should have to pay any portion whatsoever of their refund or paycheck to fulfill a mandatory requirement like filing tax returns,” Lierman said at a news conference announcing the program.

The IRS and the U.S. Treasury still have to finalize eligibility rules for the program this fall, but Lierman said it will be a “game changer” for those families who do qualify, which could be as much as 20% of individual taxpayers in the state.

“Taxes are a part of the glue that keeps our state and our nation together, functioning, producing, protecting and thriving,” Lierman said. “Yet in America, we make it uniquely challenging to pay those taxes and file a return — until now.”

According to the Treasury, taxpayers spend “approximately 13 hours and $270 preparing their taxes each year.” Many Americans use tax filing services or software, such as TurboTax and H&R Block, to ensure that their taxes are filed correctly, despite most of the information being readily available state and federal tax collection agencies.

Direct File launched this year in 12 states for people to file their 2023 federal returns — Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. Treasury Deputy Secretary Wally Adeyemo said the program is aimed at helping middle-income tax filers with “relatively simple” filings.

“What I can tell you is our goal for us is to build a system that’s going to work for working class and middle class Americans. So you get a W-2, and you’re somebody who’s a teacher, you’re a fireman, you’re a doctor who’s earning most of your money from a W-2, we want to make sure we’re building a system that potentially works for you,” said Adeyemo, who was in Annapolis for the announcement.

“The thing we’re not going to do is build a system that works for big corporations or wealthy individuals. Next year we’re going to expand the system so that more Americans are able to participate in it,” Adeyemo said.

The Biden administration invited all 50 states and the District of Columbia to join the program next year, when people will be filing their 2024 taxes. The Treasury said that Maryland joins Oregon, New Jersey, Pennsylvania, New Mexico, Connecticut, North Carolina, Wisconsin, and Maine in taking up Direct File.

“I know to some, this announcement may seem inconsequential — and I know how exciting tax announcements are,” Gov. Wes Moore (D) joked at the announcement. “But the details matter. They matter to the families who are impacted by this work. They’re going to matter to the families, who … dread tax season because it feels complicated. Who dread tax season because it seems expensive, or oftentimes have to deal with the consequences of getting something wrong.”

The Direct File program came out of the Inflation Reduction Act signed in 2022, which also secured additional funding to help the IRS modernize and provide better services to Americans.

But Sen. Chris Van Hollen (D-Md.), who chairs a Senate Appropriations Subcommittee on Financial Services and General Government Appropriations Subcommittee, said Direct File program and other services under the Inflation Reduction Act could be “under threat.”  While his subcommittee wants to fully fund the IRS and keep Direct File going, House leaders want to cut funding for both.

He also said that the industry is lobbying against the free tax filing system.

“There are people who didn’t want us to do this, including a lot of the middlemen” who currently profit from tax preparation, Van Hollen said. “They’re lobbying against this kind of thing.”

In addition to Van Hollen, Moore, Lierman and Adeyemo, Wednesday’s event drew a number of Maryland Democratic heavyweights: U.S. Sen. Ben Cardin, U.S. Reps. Steny Hoyer John Sarbanes and State Treasurer Dereck Davis.

Hoyer put it simply: “Nobody likes taxes.”

“We don’t really get excited about paying our taxes. But we know that it is the price of our democracy,” Hoyer said. “We ought to make it as easy as possible for people to comply with a legal obligation that they have to support their country, their state and their communities.”