The IRS’ direct tax return e-filing program will be a permanent option for taxpayers moving forward, the Treasury Department and IRS announced Thursday, touting the success of this year’s pilot. (IR 2024-151, 5/30/2024)
“As we look to next filing season, we’re ready to build on the success of the Direct File pilot,” Treasury Secretary Janet Yellen told reporters on a press call May 30. “We will make Direct File a permanent IRS service and invite all states to participate in Direct File starting next year. In addition, over the next few years, we will expand Direct File so that it supports all of the most common tax situations.”
The pilot was funded by the appropriation authorized to the IRS by the Inflation Reduction Act (PL 117-169) and was the agency’s first foray into building and operating an in-house tax filing system. This tax season, taxpayers in 12 states were eligible to participate in the pilot if their returns reflected certain sources of income and credits when it launched in March. Direct File was an additional option alongside the agency’s Free File initiative in which the IRS partners with third-party tax software providers to provide cost-free e-filing services to taxpayers under specified income thresholds.
Yellen said that during the pilot, 140,000 returns were accepted in five weeks, which exceeded the goal of 100,000 returns. She added that the program saved taxpayers a combined $5.6 million in filing fees that would have otherwise gone to commercial tax prep companies.
In total, taxpayers received $90 million in refunds. “They also liked the product and found it easy to use,” said Yellen. “90% of survey respondents rated their experience with the Direct File as excellent or above average. They appreciated that it allowed them to quickly fix mistakes, and that there were no fees or upsells.”
Direct File has the support of many Democratic lawmakers, who recently called on Treasury and the IRS to make the program permanent.
“IRS Direct File delivered on the promise of free and simplified tax filing for taxpayers, and we are excited to see that the program is here to stay,” said Adam Ruben, vice president of campaigns and political strategy at the Economic Security Project in a statement provided to Checkpoint. “It was evident that taxpayers saw the value of Direct File, both in making their lives easier and demonstrating what great government customer service looks like. We are already working with our partners in states across the nation to support the expansion of Direct File next year so more taxpayers can take advantage of free and simplified tax filing in the next tax season.”
Critics, however, say the program is costly and unnecessary given the amount of filing options already available to taxpayers. IRS Commissioner Danny Werfel acknowledged that some taxpayers responded to an IRS survey indicating they are reluctant to use Direct File if their current preferred filing method — like a third-party vendor — continues to be viable.
“Taken as a whole, the feedback points to a tax system with several no-cost options where taxpayers can choose which works best for them in this way,” said Werfel. “Adding Direct File to the menu of filing options fits squarely into the IRS’ effort to make taxes as easy as possible for Americans, including saving time and money.”
Werfel later mentioned that more details are forthcoming on what a permanent, expanded Direct File will look like. He said the goal is to gradually phase in more tax forms so the program’s scope reflects the most common tax situations. Treasury and the IRS hope that all 50 states and the District of Columbia will opt into the program. Presently, it is unclear when, or if, Direct File will also support state income tax returns.
In terms of cost, the pilot’s final price tag was $31.8 million, Werfel said. For next year, he said he does not “see a scenario” in which the full launch would “truly exceed” the current placeholder estimate of $75 million, but it depends on the number of participating states and how many tax situations the program will cover by next filing season.
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