IRS makes Direct File permanent, with plans for expansion

The IRS’s Direct File program is here to stay and will be expanded for the 2025 tax season, the agency announced Thursday.

The decision to make Direct File a permanent program comes after a pilot this year that allowed taxpayers in 12 states to electronically file their federal returns directly with the agency at no cost.

IRS Commissioner Danny Werfel said in a statement that taxpayers this filing season delivered a “clear message” to the agency in wanting “one no-cost option for filing electronically.”

“Giving taxpayers additional options strengthens the tax filing system,” Werfel said. “And 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.”

More than 140,000 taxpayers — in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming — used Direct File in 2024, according to the agency, receiving more than $90 million in refunds and reporting $35 million in balances due.

The IRS said in a Direct File 2024 post-mortem last month that there was “steadily increasing interest” in the program, though Werfel had to “consult a wide variety of stakeholders” before rendering a decision on its future. 

Now that Treasury Secretary Janet Yellen has accepted Werfel’s recommendation that Direct File continue indefinitely, the agency said it is “examining options to broaden” the system’s availability across the country, “including covering more tax situations and inviting all states to partner with Direct File next year.”

There will be “no limit” on the number of participating states in 2025, the IRS noted, and going forward, Direct File will expand “to support most common tax situations, with a particular focus on those situations that impact working families.”

Werfel said Direct File’s user experience, both within the product and in state-wide systems integrations, “will continue to be the foundation” for the program. 

“Accuracy and comprehensive tax credit uptake will be paramount concerns to ensure taxpayers file a correct return and get the refund they’re entitled to,” he said. “And our North Star will be improving the experience of tax filing itself and helping taxpayers meet their obligations as easily and quickly as possible.”

Though the agency touted positive user feedback in the weeks after the conclusion of the 2024 filing season, Direct File wasn’t without its critics. A Government Accountability Office report last month found that estimated start-up costs for the program were incomplete and “a comprehensive accounting” was needed if the pilot were to be continued and expanded. 

“A review by the Treasury Inspector General for Tax Administration found that IRS had no documentation to support the underlying data, analysis, or assumptions used for Direct File cost estimates. We found this as well,” the GAO wrote. “Without collecting the information needed during the 2024 pilot to inform a comprehensive assessment of the costs associated with Direct File and its benefits, IRS risks making longer-term decisions without full information.”

The highly lucrative tax preparation industry has also been exceedingly critical of Direct File, calling the program “a solution in search of a problem” given other no-cost filing options. 

Those companies have sought to draw a contrast between the 140,000-plus Direct File pilot users and the millions that use their services each year. Derrick Plummer, an Intuit spokesperson, said in a statement to FedScoop that the company’s TurboTax program “has filed millions of completely free tax returns annually and has provided more than 124 million free tax returns over the past decade.”

Shortly after the Direct File announcement, Werfel made another move Thursday to bolster its taxpayer experience, naming Fumi Tamaki its chief taxpayer experience officer. Previously an adviser in the IRS Transformation and Strategy Office focused on “enterprisewide taxpayer journey improvement initiatives,” per an IRS announcement, Tamaki will now set the agency’s vision for continuously improving the taxpayer experience as part of the IRS’s larger digital transformation.

“This is a critical time for IRS, and I am excited to continue working with IRS leaders and our external partners in this role,” Tamaki said in a statement. “The Taxpayer Experience Office team and IRS have made tremendous strides in improving the taxpayer experience. I am committed to build on this work to deliver the experience that taxpayers expect and deserve.”

Billy Mitchell contributed to this article.

This story was updated May 30, 2024 with comments from an Intuit spokesperson.