IRS Announces Direct File As Permanent: Here’s What You Need To Know

The IRS declared on Thursday that the Direct File program is here to stay and will grow for the 2025 tax year.

Following a trial this year that enabled taxpayers in 12 states to electronically file their federal returns directly with the agency for free, the decision was made to make Direct File a permanent service.

In a statement, IRS Commissioner Danny Werfel stated that this filing season’s filers sent the agency a “clear message” by requesting “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.”

According to the agency, over 140,000 taxpayers from the following states used Direct File in 2024: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming. These taxpayers reported $35 million in balances due and received over $90 million in refunds.

The program was receiving “steadily increasing interest,” according to an IRS Direct File 2024 post-mortem released last month. However, Werfel needed to “consult a wide variety of stakeholders” before deciding the program’s survival.

Following Werfel’s recommendation that Direct File be kept open indefinitely, Treasury Secretary Janet Yellen approved it. According to the agency, they are now “examining options to broaden” the system’s availability nationwide, “including covering more tax situations and inviting all states to partner with Direct File next year.”

The IRS stated that as time goes on, Direct File will grow “to support most common tax situations, with a particular focus on those situations that impact working families,” and that there will be “no limit” on the number of participating states in 2025.

Werfel stated that the user experience of Direct File “will continue to be the foundation” for the initiative, both inside the product and in state-wide systems linkages.

“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.”

In the weeks following the end of the 2024 filing season, the agency highlighted favorable user feedback, but Direct File wasn’t without its detractors. According to a study released by the Government Accountability Office last month, the program’s estimated start-up expenses were not complete, and “a comprehensive accounting” was required if the pilot were to be expanded and extended.

“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.”

Given numerous free filing choices, the extremely profitable tax preparation sector has also been harshly critical of Direct File, referring to the program as “a solution in search of a problem”.

These businesses have made an effort to highlight the differences between the millions of people who use their services annually and the more than 140,000 Direct File pilot customers. An Intuit representative, Derrick Plummer, told FedScoop in a statement that the company’s TurboTax application “has provided more than 124 million free tax returns over the past decade and has filed millions of completely free tax returns annually.”

Werfel named Fumi Tamaki as its chief taxpayer experience officer on Thursday, a further step toward strengthening its user experience, just after the Direct File announcement. As part of the IRS’s broader digital transformation, Tamaki, who was previously an adviser in the IRS Transformation and Strategy Office focused on “enterprisewide taxpayer journey improvement initiatives,” will now establish the agency’s vision for consistently enhancing the taxpayer experience.

“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.”