IRS Direct File Will Be Permanent, Competing With TurboTax, H&R Block

The IRS recently completed its Direct File pilot program. This test tax filing initiative was designed to offer taxpayers a new, simple way to file their federal taxes directly with the agency for free. By the final week of the 2024 tax season, the IRS says Direct File processed over 5,000 accepted returns daily, totaling more than 140,000 filings.

That had some wondering whether the program, which has critics, including some in the United States Congress and tax prep industry giants like Intuit TurboTax and H&R Block, would return next year. 

Earlier this summer, the IRS answered that question, announcing that Direct File will be a permanent option for filing federal tax returns, starting with the 2025 tax season.

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"The clear message is that many taxpayers across the nation want the IRS to provide more than one no-cost option for filing electronically," IRS Commissioner Danny Werfel said in a statement.

The move to make Direct File permanent comes after numerous lawmakers and organizations recently urged U.S. Treasury Secretary Janet Yellen and Werfel to renew the program for another tax season.

Direct File IRS tax filing program

Commissioner Werfel emphasized the IRS' commitment to providing taxpayers with convenient filing options, saying, "Adding Direct File to the menu of filing options fits squarely into our effort to make taxes as easy as possible for Americans, including saving time and money."

• The IRS Direct File pilot program was available to a limited number of people in 12 states during the 2024 tax season.
• Direct File gradually expanded its availability throughout the filing season, experiencing a surge in taxpayer interest in pilot states as the tax deadline approached.
• Taxpayers collectively claimed over $90 million in tax refunds and reported $35 million in tax balances due. 
• Millions of people reportedly visited the Direct File website to learn more about the filing option. 

Werfel has highlighted the positive response from users, who said they found Direct File fast and easy to use. According to an IRS survey of Direct File users, 90% ranked their experience as "Excellent" or "Above Average." Additionally, 86% of respondents indicated their trust in the IRS increased due to using Direct File.

Key states in the Direct File pilot included California, Texas, Florida, New York, and Washington. California and Texas had the most taxpayers using the system, with 33,238 and 29,099, respectively. Nevada, New Hampshire, South Dakota, Tennessee, and Wyoming also participated. All states and the District of Columbia have been invited to participate for the 2025 tax filing season, but as Kiplinger reported, not all states are opting into Direct File. 

According to Werfel, the IRS also saw increased use of other free options for taxpayers this past tax season, including Free File and returns prepared at VITA and TCE sites. (IRS Free File focuses on taxpayers with income under $79,000 and has recently been extended for five years, through 2029.)

IRS Direct File will be permanent option

Operational costs of the Direct File pilot, including customer service and technology, totaled about $2.4 million. The IRS plans to continue analyzing data collected during the pilot, including taxpayer feedback, to inform updates, enhancements, and expansion. A goal is to provide additional details in the coming months and invite all 50 states and the District of Columbia to participate in Direct File.

Numerous lawmakers, led by Sen. Elizabeth Warren (D-Mass.), had advocated keeping and expanding the  Direct File platform. In a letter to Treasury Secretary Yellen and IRS Commissioner Werfel, they  described the pilot as an "incredible success." The letter also emphasized Direct File's potential to provide a free and easy tax filing alternative to commercial providers.  Intuit TurboTax estimates a loss of about one million users of its free edition product in FY2024. The company's stock (INTU) dropped after that news and the IRS announcement regarding Direct File.

The Coalition for Free and Fair Filing, comprised of close to 260 organizations in the U.S., wrote a similar letter touting the program's popularity among taxpayers. That letter also noted Federal Trade Commission (FTC) concerns surrounding allegedly misleading and deceptive advertising involving two tax prep industry giants, Intuit Turbo Tax and H&R Block. 

The coalition's website states, “Americans spend 1.7 billion hours or $31 billion annually to file their taxes.” The group contends most individuals should be able to do this for free in less time with options like Direct File.

However, some in the U.S. House of Representatives have expressed concern about Direct File, saying it "unilaterally makes the IRS the tax preparer, filer, and auditor for the American people."

Related

• Some States Won't IRS Direct File Option
• Types of Income the IRS Doesn't Tax
• FTC: Intuit Turbo Tax-Free Filing Ads Are Deceptive
• Did You Overpay for H&R Block Tax Filing?