IRS announces new income tax brackets and deductions for 2025
The IRS has announced major tax changes for 2025 in line with inflation, including adjustments to income tax brackets, deductions, and capital gains.
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With the Trump administration’s repeal of IRS Direct File, Americans will have one less free option to file their taxes in 2026.
Direct File, launched during former President Joe Biden’s term, was intended to simplify and save Americans money on filing their federal taxes. The program was initially launched on a pilot basis for the 2023 tax year, allowing taxpayers in 12 states to file returns directly with the IRS. The following year, the program expanded to 25 states.
Without it, Direct File supporters said, Americans would spend even more time and money paying taxes. Former Treasury Secretary Janet Yellen, who served in the Biden administration, estimated that the average American taxpayer spent $270 and 13 hours preparing their tax return.
“I wrote the bill to create Direct File because existing free options are not enough and large tax preparation companies have been caught red-handed trying to scam taxpayers out of overpayments,” Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) said in a statement.
Why are direct files terminated?
Critics said DirectFile’s development cost taxpayers a lot of money, but few Americans took advantage of it.
Direct File had the lowest participation rate of all free tax preparation programs, according to the House Revenue Report. Just under 141,000 returns were filed during the 2023 tax year pilot program, in which 12 states participated.
The following year, 25 states participated and 296,531 returns were filed, less than 0.5% of the approximately 146 million total returns. But the program cost taxpayers at least $41 million, or at least $138 per return, the report said.
It also states that “the $41 million underestimates the actual costs of developing, administering, and supporting Direct File for the 2024 tax year because not all agency support functions are included in Direct File’s costs.”
“It turns out that taxpayers simply did not want to take advantage of the costly and inefficient government-run Direct Filing Tax Program, where the IRS acts as the preparer, filer, and auditor for Americans’ taxes,” House Ways and Means Committee Chairman Jason Smith of Missouri said in a statement.
What can Americans do instead of direct files?
Richard Pong, a certified public accountant in San Francisco, said Americans who used Direct File will now have to prepare paper returns or use another software. “But there are low-cost software providers everywhere, and some offer free versions for basically W2 or anyone interested,” he said.
Free options for taxpayers include:
- IRS Free File. Free tax preparation software available exclusively on IRS.gov provided to eligible taxpayers by eight private companies affiliated with the IRS. Last year, taxpayers could qualify if their 2024 adjusted gross income (AGI) was $84,000 or less. IRS Free File also provides fillable forms that can be used by all taxpayers, regardless of income, who are comfortable preparing their own returns.
- Income tax volunteer/tax consultation for the elderly. IRS certified volunteers who work with some community organizations. Provides free tax assistance to eligible taxpayers, including working families, the elderly, people with disabilities, and people with limited English proficiency. The AARP Foundation’s Tax-Aide, part of Tax Counseling for Seniors, is billed as the nation’s largest free, volunteer-staffed program to help people prepare and file their taxes. In 2024, approximately 28,000 volunteers helped approximately 1.7 million taxpayers file their tax returns.
- Miltax. Department of Defense program. Generally, we provide free return preparation and e-filing software for federal income tax returns and up to three state income tax returns to all military members and some veterans, with no income restrictions.
- H&R Block Online Free Edition. Although H&R Block is no longer participating in Free File, the tax preparation giant offers its own free service. According to the website, 52% of taxpayers qualify for the online free version. You should get a relatively easy return.
- TurboTax free version. TurboTax also provides free tax preparation to taxpayers with relatively simple filing. Approximately 37% of applicants qualify.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
