'We hope to make a decision fairly soon'
Will The IRS's Free Direct File Option Be Back Again In 2025?
Some lawmakers and taxpayers are hailing the IRS’s pilot test for a free, government-run tax-filing tool as a major success, but the future of the program hangs in the balance.
During the 2024 tax filing season, the IRS says more than 140,000 Americans successfully filed their federal taxes for free using the new online tool, known as Direct File, saving them an estimated $5.6 million in tax preparation fees. Last week, more than 130 Democratic lawmakers signed a letter to the U.S. Department of the Treasury urging the IRS to expand the program and make it permanent.
“The Direct File pilot has been a clear and resounding success,” the letter states, then suggests that the tool be implemented nationwide for future tax seasons.
The IRS launched the Direct File pilot program in March to taxpayers in 12 states. Even though nearly 19 million Americans were eligible to participate in the pilot, the IRS says it was expecting just 100,000 successfully filed federal returns. The amount of users, the agency says, exceeded expectations.
An internal study of 11,000 taxpayers who used Direct File found that 9 out of 10 filers rated the software and free filing experience as “excellent” or “above average.” (One Texas resident who participated in the Direct File pilot shared: “I don’t want to call myself a dummy, but this is taxes for dummies right here.”)
A sprawling 2022 law dubbed the Inflation Reduction Act mandated that the IRS study the feasibility of a federally run free tax filing system. As part of the study, the agency decided to build fully functioning software and test it out in a real-world scenario, as opposed to solely relying on hypothetical surveys and focus groups, IRS Commissioner Danny Werfel explained in a congressional budget hearing earlier this month.
IRS Direct File is separate from the longstanding IRS Free File program, which is a public-private partnership that allows folks under a certain income threshold to file for free with a third-party software.
Will IRS Direct File return in 2025 and beyond?
The IRS has not yet confirmed whether the Direct File program will continue in future tax years. Werfel has said that the agency will announce its decision by the end of the spring after analyzing feedback from various stakeholders.
But despite recent praise for Direct File by some taxpayers and lawmakers, not everyone is happy with the program.
According to the nonprofit OpenSecrets, the tax-prep industry spent millions of dollars lobbying the federal government recently in a bid to quash Direct File. A TurboTax spokesperson told the organization that Direct File is a “thinly veiled scheme” that spends billions of dollars to offer a service that is already available to taxpayers by private companies (both through IRS Free File and their own offers).
However, the tax prep industry is often accused of hiding those free-filing options from customers — and up-charging them at the end of the filing process. In January, for example, the Federal Trade Commission issued an opinion and order finding that TurboTax “deceived consumers when it ran ads for ‘free’ tax products and services for which many consumers were ineligible.”
Direct File does not have much support from Republican lawmakers, either.
Not one Republican was among the 130-some signatories of the recent letter praising the Direct File program. And in March, 18 largely Republican-led states wrote a letter to the Treasury warning that “Direct File has the potential to do more harm than good for taxpayers.”
Tax officials from those states said in the letter that since Direct File is only for federal taxes, Americans may incorrectly assume state taxes are included and forget to file with their state, potentially leading to lower tax refunds or higher tax penalties for individuals as well as decreased tax revenues for states.
Some opponents have also taken aim at the cost of implementing Direct File. According to the IRS, the pilot program cost nearly $25 million, and a full-fledged version would cost $2.5 billion over the next 10 years.
In its 2025 budget request, the IRS asked for $75 million more for the expansion of Direct File — though neither the budget nor the decision to continue the program has yet to be finalized.
When asked about the future of Direct File during the budget hearing, Werfel said that the agency should be wrapping up analysis of feedback and announcing the program’s fate in the coming weeks.
“We hope to make a decision fairly soon,” he said.
Rated A+ by the BBB
- 100% money-back guarantee if your tax situation does not improve*
- Best for individuals with over $10,000 in tax liabilities
- 100% free (no-obligation) eligibility analysis on IRS tax reduction programs
- Assistance with federal and state-owed taxes
- 10+ years of tax resolution experience
- Rated A+ by the BBB
Specialists in tax issues over $20,000
Specialists in Tax Issues Over $20,000
- Federally-licensed enrolled agents lead your casework
- 17+ years of tax resolution experience
- Specialized tax experts on IRS and state tax relief
12+ years of tax resolution experience
Tax Solutions for Consumers with Over $10,000 in Owed Taxes
- Free consultation with a tax resolution professional
- 12+ years of tax resolution experience
- BBB Torch Award for Ethics (2-Time Winner)
21+ years in service
Specialize in individual & corporate tax relief over $20,000
- 22+ years in service
- A+ Rating with the BBB
- 15 Day Money Back Guarantee
- Helps resolve back taxes, fight penalties and liens, stop collection efforts, and file accurate returns
More from Money:
Here’s When Small Tax Refunds Are Actually a Good Thing
The IRS Is Resuming Debt Collections. Here’s What to Do if You Can’t Pay Your Taxes
Copyright 2024 Money Group, LLC. All Rights Reserved.
This article originally appeared on Money.com and may contain affiliate links for which Money receives compensation. Opinions expressed in this article are the author's alone, not those of a third-party entity, and have not been reviewed, approved, or otherwise endorsed. Offers may be subject to change without notice. For more information, read Money’s full disclaimer.
