The State should partner with IRS Direct File to benefit Arkansans.

Last year the Internal Revenue Service piloted its Direct File program, a free online system for filing federal tax returns. The IRS kept the pilot program purposefully small, making it available in 12 states originally: Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. By any measure, IRS Direct File was very successful during the 2024 filing season. In an IRS post-completion survey, 90% of respondents ranked their experience as excellent or above average. And in a national survey conducted by a research firm found: 

• 91% of users would recommend Direct File 
• Three out of four users prefer Direct File over alternatives 
• 61% of Direct File users said say their experience in 2024 was more straightforward than in the previous year 
• 60% of Direct File users reported it took them less than one hour to complete their taxes 

American taxpayers spend more than $30 billion on tax preparation fees each year. The burden falls disproportionately on low-income taxpayers, including ALICE (Asset Limited, Income Constrained, Employed) families, or households that earn more than the Federal Poverty Guidelines but still can’t afford basic needs. More than half the households in Arkansas are classified as ALICE or below the Federal Poverty Guidelines. 

Tax preparation companies often offer a “free” option, but then end up charging $200 or more. Last year it was revealed that TaxAct, H&R Block, TaxSlayer, and other online tax preparers were sharing taxpayers’ sensitive financial data with Google and Meta ― in direct violation of taxpayer privacy laws. Furthermore, studies by the Government Accountability Office and the National Consumer Law Center consistently suggest that 10% or fewer of the returns completed by paid tax preparers are completely accurate. 

In our state, Arkansans with access to federal and state Direct File would save a total of $73 million in filing fees. They would save additional millions of dollars worth of time required to complete taxes. Perhaps most important, Arkansas families would see an additional $75 million in tax credits, simply because Direct File closes the “coverage gap,” raising awareness of credits like the federal Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), and making it much easier for low- and moderate-income families to access these credits. 

Direct File will benefit many Arkansans. However, it is critical that the state coordinates with the IRS Direct Filing system so that taxpayers can seamlessly file both federal and state taxes. This is not just about convenience; having to file state returns separately would force Arkansans to continue to use tax preparation companies. 

North Carolina recently joined Direct File. In the official announcement, the North Carolina Department of Revenue Secretary stated, “Making Direct File available as a filing option to North Carolinians is a huge win for working families. It provides a free filing option for eligible taxpayers, many who struggle to make ends meet.” The Secretary went on to say that it would also increase the overall efficiency of the Department of Revenue by reducing the number of paper filings state employees are required to process.

Arkansas Governor Sanders has listed more efficient government as one of her priorities. Direct File creates efficient state government. Joining makes a big difference for Arkansans. This win-win has huge benefits and only minimal start-up costs. It just makes sense. 

For more information, see the Economic Security Project’s “The Impact of Direct File – By the Numbers” and David Binder Research’s “National Taxpayer Survey: Opinion on Direct File vs. Alternatives.”