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Federal Tax

Dems Call for Expansion of Direct File

Maureen Leddy  

· 5 minute read

Maureen Leddy  

· 5 minute read

Over 130 Democrats urged Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel to make the tax e-filing pilot program, Direct File, permanent and extend it to more taxpayers.

In a May 15 letter spearheaded by Senators Elizabeth Warren (D-MA) and Tom Carper (D-DE), as well as Representatives Don Beyer (D-VA), Katie Porter (D-CA), and Brad Sherman (D-CA), the lawmakers noted the successes of the Direct File pilot during the 2024 tax season. They point to a General Services Administration Touchpoints survey of Direct File users where 90% of respondents rated their experience with the e-filing program as “excellent” or “above average.” In addition, 86% of respondents indicated their trust in the IRS increased after they used Direct File.

The lawmakers say “[t]he average American spends $150 and nine hours to file their taxes each year.” And partnerships with private tax preparations companies have “fallen short of expectations,” they added, “reaching only 2% of taxpayers while 70% qualify.”

The letter also points to issues with private tax preparation companies, including the Federal Trade Commission’s findings that Intuit and H&R Block charged taxpayers for services that should have been free. In addition, it notes studies that found costly errors in tax filings by some preparers targeting low-income communities of color and foregone benefits, like the Child Tax Credit and Earned Income Tax Credit.

More than 140,000 taxpayers used Direct File in 12 pilot states during the 2024 tax season. At a recent Ways and Means Committee hearing, Yellen provided some initial data on the pilot — there was increasing interest during the short interval that Direct File was available and taxpayers spent just about an hour filing taxes via the free filing program.

The Economic Security Project’s survey of Direct File users found similarly positive results, with 91% of respondents giving the e-filing program at least a 7 out of 10 and 74% of respondents preferring Direct File to alternate filing methods.

A group of 256 organizations from around the nation sent a letter to Yellen and Werfel a day earlier that also urged them to extend and expand Direct File. That letter called for expanding access to taxpayers in more states as well as in more tax situations — including gig income workers.

The organizations also called on the IRS to further streamline tax filing via Direct File by pre-populating additional tax data the agency “already has on file.” Late in the 2024 tax filing season, the IRS said it had adjusted Direct File to allow users to “import verification details — the previous year’s adjusted gross income or the prior year’s temporary pin — from the IRS, which could minimize a common error.”

However, many Republicans have taken issue with Direct File, saying it is duplicative of private sector e-filing programs and that far too much was spent on the pilot that served such a small number of taxpayers.

“Despite there already being multiple free filing programs offered by the IRS, the agency embarked on a redundant government-run tax preparation project, complete with all attendant inefficiencies and conflicts-of-interest,” said Senator Mike Crapo (R-ID) at a recent Finance Committee hearing on the IRS’ 2025 budget. He added that “[w]ere the IRS to use this year’s Direct File spending to pay third-party providers to prepare and file returns instead, literally hundreds of times the number of taxpayers could file for free.”

 

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