IRS ends Direct File, shifts focus to Free File upgrades and private sector

The IRS ended Direct File, the free, online pilot program that nearly 300,000 taxpayers in 25 states used to file returns for tax year 2024.

The IRS website for Direct File says “Direct File is closed. More information will be available at a later date.”

“We have better alternatives,” Treasury Secretary Scott Bessent, the acting IRS commissioner, told reporters at the White House on Wednesday, according to multiple news outlets. “It wasn’t used very much, and we think that the private sector can do a better job.”

Direct File allowed eligible taxpayers to file tax returns directly with the IRS for free. It began in 12 states, then expanded to 25 for tax year 2024, when it also covered more tax situations than the pilot program did. The IRS also operates Free File, which provides access to free software tools offered by IRS partners and is available to taxpayers with an adjusted gross income of $84,000 or less.

For tax year 2023, 140,803 returns were filed by users and accepted by the IRS Under the Direct File pilot program. For tax year 2024, 296,531 returns were filed by users and accepted by the IRS as of April 20, according to a Treasury report to Congress last month.

For tax year 2024, returns submitted using Direct File made up less than 0.5% of the approximately 146 million returns filed, the report said. Direct File cost at least $41 million in tax year 2024, the report said, adding that the figure understates “the true costs of developing, administering, and supporting” the program that year.

The report recommends that the IRS focus on strengthening existing free filing programs, particularly Free File.

The IRS will take the following actions, the report said:

• Conduct an updated taxpayer survey, on preferences for different filing options, that addresses methodological and other challenges present in earlier surveys.
• Convene a Free Filing Modernization Summit.
• Create a common understanding of a “free return” across all filing options available to taxpayers.
• Collect more robust usage data from software providers.
• Develop a supplemental report to Congress, including updates based on the actions listed above.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.