Maryland makes filing taxes online free for some

More than 700,000 Marylanders should be able to file their state and federal income tax returns online for free next year, saving residents hours of work and hundreds of dollars on tax software and prep services.

Maryland joined dozens of states Wednesday in a voluntary federal program called Direct File after a test run received positive reviews and showed possible cost savings. Filing paper returns by mail will still be an option.

“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,” Maryland Comptroller Brooke Lierman said at a news conference in Annapolis.

The first-term Democrat called the program a game changer for Maryland taxpayers that will modernize her agency. It targets low-to-moderate earners with relatively simple tax returns, and is expected to expand over time.

Lierman’s office will partner with the nonprofit Code for America to integrate the Maryland tax filing system into Direct File. Eligibility requirements will be announced in January, the comptroller’s office said.

Gov. Wes Moore, State Treasurer Dereck E. Davis, members of Maryland’s congressional delegation, U.S. Deputy Secretary of the Treasury Wally Adeyemo and nonprofit partners joined Lierman for the announcement.

Funds from the Inflation Reduction Act of 2022 helped build and test the system. The IRS and Treasury Department then invited states to participate.

The IRS has been considering a free e-filing option for low-income American taxpayers for decades, according to the Congressional Research Service. When tax prep companies pushed back, the federal government agreed not to compete with them if they provided free help and e-filing to low-earning taxpayers.

However, many qualified taxpayers were pushed toward paid services, according to an investigation by nonprofit news outlet ProPublica.

The IRS piloted Direct File in 12 states this year. Filers used a laptop, tablet, cellphone or other device to submit income returns and request certain tax credits offered to low-earning individuals and families.

In a survey, nine out of 10 Direct File users ranked their experience as “Excellent” or “Above Average.”

U.S. Rep Steny Hoyer, a Democrat representing Maryland’s 5th District, called paying taxes the “price of our democracy.”

“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,” he said. “And this system of Direct File does that.”

Robin McKinney, CEO and co-founder of CASH Campaign of Maryland, said easy, free online filing makes the government work more efficiently for citizens and should deliver refunds and credits to taxpayers faster.

McKinney’s nonprofit promotes economic advancement for low- to moderate-income Marylanders and provides free tax help, among other services.

Economic Security Project, a nonprofit that advocates for guaranteed income and economic equity for working families, found that adopting Direct File could mean $355 million in costs and time saved for Maryland’s low- to moderate-earners.

Maryland recently has expanded tax credits for working families, but about $152 million goes unclaimed each year, according to the Security Project’s analysis.

They also estimated that about $148 million could be saved in filing fees and $56 million could be saved in time spent filing taxes.

That money could have gone into Marylanders’ pockets, CASH Campaign’s McKinney said, and it could have gone back into the state’s economy.