Maine will join new IRS program letting taxpayers file free returns

By Billy Kobin, Bangor Daily News Staff

Mainers tired of relying on paid tax preparers will soon have a new free option, with the state saying it will opt in to the Internal Revenue Service’s Direct File system by next year.

Direct File, which lets taxpayers file federal returns online for free, will become a permanent option for states to join starting in the 2025 tax season. Roughly 140,000 taxpayers in 12 states used Direct File in a pilot ending earlier this year. The IRS deemed it a success by helping filers claim more than $90 million in refunds and save about $5.6 million in filing costs.

Maine was not part of the pilot but will join Direct File starting in 2025, state officials confirmed Thursday. Direct File is limited to taxpayers who meet income thresholds and have common tax situations. They will still need to file any state tax returns separately, Anya Trundy, a senior official with the Department of Administrative and Financial Services, said. 

Maine Revenue Services has allowed residents to file state income taxes directly online for free since 2001, Trundy noted. Maine will also work with the IRS to “fully integrate” Direct File and the online Maine Tax Portal, which replaced the original system this past tax season.

“This will enable taxpayers to have their information automatically transferred from their completed federal return to begin their Maine return,” Trundy, the finance department’s director of legislative affairs, said.

The liberal Maine Center for Economic Policy had urged the administration of Gov. Janet Mills, a Democrat, to join the program to ease the tax filing process and because a report found it could save Mainers up to $33 million in filing fees spent on tax preparation software from companies like TurboTax that have long lobbied against a free option.

The March report from the Economic Security Project also found Direct File could help Mainers take advantage of between $19 million and $49 million in federal tax credits left on the table by residents who do not realize they are eligible for the Child Tax Credit, Earned Income Tax Credit and other programs.

While other free programs exist, they are sometimes difficult to access or also appear alongside paid options. Direct File is not intended to fully replace the for-profit industry. 

While 70 percent of taxpayers who meet income requirements are eligible to file for free, only 2.2 percent did in 2022, Maine Center for Economic Policy tax policy analyst Maura Pillsbury said. Research has also shown for-profit “storefront” tax prep operations disproportionately target low-income racial and ethnic groups, Pillsbury added.

“We’re incredibly excited about this and really applaud the Mills administration for taking this step,” Pillsbury said of the state joining Direct File. “We think it’s really important for advancing tax fairness in Maine.”

The IRS Direct File program came via increased funding in the Inflation Reduction Act, which was led by Democrats and President Joe Biden while being  opposed by Republicans when it passed in 2022. But Maine’s move to join Direct File drew no concerns Thursday from the conservative Maine Policy Institute.

“If the government is going to mandate you pay taxes, they probably should establish a system where it can be done easier or for free,” Jacob Posik, the group’s legislative affairs director, said.