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IRS' no-cost Direct File will be a permanent tax filing option

The Internal Revenue Service recommended, and the U.S. Treasury agreed, that the free tax software program created and operated directly by the IRS will be a permanent tax preparation and electronic filing option. Federal tax officials are encouraging all 50 states and Washington, D.C., to join the expanded Direct File program in filing season 2025.

IRS Direct File banner image_A Closer Look-1

All U.S. taxpayers next year could have another no-cost option to prepare and e-file their federal tax returns.

The U.S. Treasury Department and Internal Revenue Service today announced they found this tax season’s Direct File pilot program successful enough to expand to taxpayers across the United States.

Direct File, a no-cost tax preparation program that lets filers complete and e-file their federal returns online, was created and administrated completely by the IRS. No outside software required. The Direct File pilot program this year ran through the April 15, 2024, Tax Day in a dozen states.

The decision to expand and make Direct File permanent comes on the heels of the IRS announcement that Free File, Uncle Sam’s 22-year-old partnership with private sector tax software manufacturers, will continue through 2029.

Although the number of companies participating in Free File has slipped over the years — notably, the two biggest companies, Intel’s TurboTax and H&R Block, dropped out — the IRS said almost 3 million taxpayers whose adjusted gross income was $79,000 or less in 2023 had, as of May 11, used Free File.

Once Direct File’s capabilities are increased and it’s open to filers nationwide, tax officials hope that the numbers of electronic filers will increase even more.

Direct File pilot expansion plans: While the Direct File did not place an income limit on potential users, it did have other edibility requirements that reduced wider appeal.

The main one was its geographic limitations. It was restricted to taxpayers in 12 states.

Those Direct File users then had to fall into the following categories:

  • Their income was only from job earnings where a Form W-2 was generated.
  • They did not itemize. In addition claiming the standard deduction, eligible Direct Filers could also claim two other above-the-line deductions, those for educator expenses and student loan interest.
  • The only credits they claimed were the Earned Income Tax Credit, Child Tax Credit, and the Credit for Other Dependents.
  • They lived in the same state — of the 12 in the pilot — for the entire calendar year 2023.

The IRS said it is exploring ways to expand Direct File so that more taxpayers will be eligible to use it next year. The agency said it would announce additional expansion details on the 2025 tax filing season expansion in the coming months.

Tax officials also want all taxpayers to be able to use Direct File.

“After a successful pilot, we are making Direct File permanent and inviting all 50 states to offer this free filing option to their residents. The Treasury Department and IRS look forward to working with states to expand Direct File for Americans across the country,” said U.S. Secretary of the Treasury Janet L. Yellen.

Good numbers, happy filers: The Direct File expansion decision, said the Treasury and IRS, was based on their analyses of data collected during the pilot, which they said exceeded expectations.

The Direct File pilot was rolled out in stages, and finally opened to filers in all the 12 participating states on March 12. During the five weeks the program was widely available, tax officials said more than 140,000 Americans filed using Direct File.

These filers claimed more than $90 million in refunds and saved an estimated $5.6 million in tax preparation fees on their federal returns alone, according to the IRS.

Direct File users also reportedly were happy with the program. A GSA Touchpoints survey of more than 11,000 Direct File users, found that 90 percent of respondents ranked their experience with Direct File as “Excellent” or “Above Average.”

The IRS said it heard directly from hundreds of organizations across the country, more than a hundred members of Congress, and from those interested in using Direct File in the future.

And in addition to the Direct File data and user reactions, the IRS said it gathered feedback from state officials and representatives “across the tax landscape,” through “numerous meetings with diverse groups of stakeholders.”

Not everyone’s a Direct File fan: The IRS also acknowledged that Direct File didn’t get universal high marks. It said it also heard from “a limited number of stakeholders who believe the current free electronic filing options provided by third party vendors are adequate.”

The American Coalition for Taxpayer Rights (ACTR) is one such group. ACTR is a 12-member, nonprofit trade association representing the nation's leading tax preparation, tax software, and financial services settlement companies.

“Less than 1% of the 19 million taxpayers eligible for Direct File this year chose to use it,” said ACTR spokesperson David Ransom. “We believe Direct File is costly, confusing, and unnecessary, particularly in light of the fact that commercial tax preparers provided more than 23 million free returns this year as well as another 3 million free tax returns through the IRS Free File Program. Taxpayers would be better served if the IRS focused on promoting the existing IRS Free File program.”

This year, eight software companies are participating in Free File. They will continue to make their no-cost versions available at IRS.gov through the Oct. 15 extended filing deadline.

Government-wide effort: While the IRS was the agency in charge of Direct File, it noted that to build the program it assembled a team of experienced tax experts, digital product specialists, engineers, and data scientists from across the federal government.

The IRS partnered with the U.S. Digital Service and U.S. General Services Administration’s 18F, a division of the GSA Office of Technology Transformation Services. 18F works to design, build, and buy digital services that improve public interaction with federal government services.

The IRS also got support from private sector partners, working both at IRS headquarters and remotely.

Direct File also provided the IRS the opportunity to test customer service innovations on a large scale, said the agency, particularly with the program’s Live Chat feature. It was the primary customer support channel because it could be integrated directly into the product, expanding as Direct File was rolled out in phases.

The IRS is exploring how this approach could affect overall taxpayer service as the agency looks to give taxpayers more choices in how they can interact with the IRS.

“We’re mindful that the most important decision we made during the pilot was to focus on executional certainty,” said IRS Commissioner Daniel Werfel. “We took the time to get it right. We found the right first step to test the demand and the user experience and build a strong product. We will apply that same critical lesson for next year as we take a strategic approach to expanding Direct File’s availability and capabilities.”

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