Will an IRS Tax Prep Service Replace H&R Block or TurboTax?
A government-run tax preparation and filing service has some wondering if people will leave H&R Block and TurboTax and let the IRS do their taxes instead.

For the 2025 tax filing season, the IRS will offer its new tax prep and filing service where taxpayers can bypass accountants and popular software and file their federal tax returns directly with the agency — for free. Last year, the IRS Direct File limited program pilot was available to selected taxpayers in 12 states. Now, the IRS plans for the program to be permanent, now offering it to taxpayers in 25 states.
“The IRS is committed to delivering significantly improved services by providing taxpayers with tools, information, and assistance to make it easier to comply with their tax filing obligations,” Commissioner Danny Werfel stated in a statement about Direct File.
Meanwhile, tax preparation companies H&R Block and Intuit's TurboTax have opposed the IRS getting into the tax preparation business and have lobbied against the idea for years.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Recently, both companies faced criticism and formal complaints from the Federal Trade Commission (FTC) for alleged deceptive advertising practices regarding their tax-free filing services and products. (More on that later.)
Related: H&R Block Faces Hefy $7 million FTC Fine
IRS Direct File program
- Last year, the IRS completed its Direct File pilot for the 2024 tax filing season.
- Twelve states, mostly those without income tax (Arizona, California, Florida, New Hampshire, New York, Nevada, Massachusetts, South Dakota, Tennessee, Texas, Washington, and Wyoming) were part of the initial limited 2024 program.
- The agency says 70% of taxpayers surveyed expressed interest in a free IRS-provided tool for preparing and filing taxes.
- IRS data revealed that people spend an average of about $250 to prepare their taxes.
As mentioned, for the current 2025 tax filing season, the following 25 states will participate in the IRS Direct File program.
Alaska, Arizona, California, Connecticut, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin, and Wyoming
The IRS estimates that over 30 million taxpayers within these 25 states will qualify to use Direct File in 2025.
Not the same as Free File
It’s important to note that this is not IRS Free File. The proposed Direct File service would be different from IRS Free File. (That program is designed for people with income under $84,000 for the 2024 tax year.)
On the other hand, this IRS-run tax prep and filing service will ultimately be available to a wider range of taxpayers with generally uncomplicated returns and incomes up to around $200,000. The agency says it is designed to be as easy or easier to use than traditional tax prep software. But like IRS Free File, the IRS Direct File tax prep service is also electronic and free.
In addition to considering the feasibility of a Direct File system, a key IRS report focuses on taxpayer opinions and costs and contains independent analysis.
According to the report, potential benefits and challenges associated with the implementation by the IRS of a Direct File program include:
- Improved experience and cost savings for some taxpayers who currently spend money to file their taxes either with accountants or using tax preparation software.
- Operational challenges like having in-house technical expertise and sufficient customer service to support Direct File.
- Eventually, the IRS will also have to figure out how to coordinate with more states — many taxpayers are used to filing their state and federal taxes at the same time.
Of course, there’s also a question of trust. The agency acknowledges that taxpayers may question IRS motives in offering a Direct File tool. People also worry about the tool impacting IRS audits and future tax enforcement.
The IRS indicates that younger people who prepare their own tax returns might be interested in Direct File.
Additionally, according to the report, taxpayers who were shown a “functioning internal prototype of Direct File, developed for research purposes, reported that the software exceeded their expectations in terms of ease of use and simplicity.”
IRS Direct file a threat to TurboTax and H&R Block?
Intuit, maker of TurboTax, previously indicated that a potential IRS tax prep service could pose a business threat. In past SEC filings, the company reportedly wrote, “We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future.”
In recent years, Intuit settled a lawsuit over allegations that the company “tricked” taxpayers into paying for its tax software when they thought they were receiving a free version. However, as Kiplinger previously reported, in agreeing to the $144 million TurboTax settlement, Intuit did not admit wrongdoing.
Earlier last year, the FTC found Intuit TurboTax engaged in deceptive advertising of its tax-free offerings. Intuit reportedly appealed the finding.
Meanwhile, H&R Block was also the subject of an FTC investigation for improper customer data handling and deceptive advertising. The company has previously supported proposed legislation that would have effectively banned the IRS from offering certain tax filing services.
Since the launch and expansion of the IRS Direct File program, the stock prices of Intuit (maker of TurboTax) and H&R Block have experienced some downward pressure.
For example, in November last year, H&R Block shares tumbled 8.2%, while Intuit shed 5.1% following reports that the incoming Trump administration was considering developing a free tax filing app.
Also, just before the IRS Direct File pilot report was released, Intuit stock (INTU) fell to its lowest point that month, and H&R Block stock (HRB) was down 4.8%.
However, it’s hard to say whether the government-run tax prep service can compete with or harm similar services provided by those companies.
Meanwhile, last year, the IRS announced that the Direct File program will be permanent. But an issue is whether the incoming Trump administration and a Republican-controlled Congress will maintain the program.
And...some will be concerned about the cost of running Direct File. Preliminary estimates indicate that the IRS tax prep service could cost between $64 million and $249 million a year, depending on the number of taxpayers using it.
Related Content
- FTC: Intuit TurboTax-Free Filing Ads Are Deceptive
- IRS Free File Is Now Open: What to Know
- H&R Block Faces Hefty $7M Fine: What It Means for Taxpayers
- How the IRS Will Use AI During Tax Season
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist.
-
Should You Get a Home Warranty?
A home warranty could lower your expenses for certain repairs, but you should weigh whether paying the premium is worth it.
By Ella Vincent Published
-
Your Retirement Savings and Spending Should Change Under Trump
These five strategies will safeguard your retirement savings and spending during this period of rapid change.
By Coryanne Hicks Published
-
Could ERC Delays Get Worse if Trump Downsizes the IRS?
IRS The Trump administration’s push to shave down the IRS can impact taxpayers like you.
By Gabriella Cruz-Martínez Published
-
IRS Income Tax Refund Schedule 2025: When Will Your Refund Arrive?
Tax Refunds Your 2025 IRS tax refund may arrive sooner than you think. Here’s a schedule for when you can expect your check or direct deposit.
By Kate Schubel Published
-
IRS Tax Refunds Are $526 Bigger This Year: Here's Why
Tax Refunds Inflation-related changes to the tax code could result in a larger refund.
By Gabriella Cruz-Martínez Published
-
Ten IRS Audit Red Flags for Self-Employed Individuals
IRS Audits Taxpayers who file Schedule C with their Form 1040 have a greater chance of an IRS audit.
By Joy Taylor Published
-
Trump Wants You Out of the IRS, But You'll Have to Wait Until May
IRS Some IRS employees won’t be able to resign using the buyout offer until the end of tax season.
By Gabriella Cruz-Martínez Published
-
Five States With the Largest EITC Checks
EITC Households in these states received a larger Earned Income Tax Credit (EITC) last year.
By Gabriella Cruz-Martínez Published
-
IRS Direct File 2025 Offers A New Way to File Taxes for Free
Tax Filing See if you qualify for this free IRS tax filing program since tax season begins January 27.
By Kate Schubel Last updated
-
Why Digitizing Your Tax Records Can Simplify Your Filing in 2025
Tax Records If you can, switching from paper to e-filing your taxes can have many benefits.
By Gabriella Cruz-Martínez Published