More than 140,000 taxpayers across a dozen states filed their taxes for free using the IRS’ Direct File pilot program this year, but whether that’s considered a success depends on whom you ask.
During the final week of tax season, ended April 15, the IRS said it was processing more than 5,000 accepted returns daily. Taxpayers using Direct File claimed more than $90 million in tax refunds and reported $35 million in tax balances due, the agency said. It added that Americans saved an estimated $5.6 million in tax preparation fees on their federal returns alone.
“We wanted to test new ways to give taxpayers an easy, accurate and free way to file their taxes online directly with the IRS,” said IRS Commissioner Danny Werfel in a statement. “We saw a strong response from the pilot, and Direct File’s users generally found it fast and easy to use.”
Was the Direct File pilot successful?
The IRS said a survey of more than 11,000 Direct File users found 90% of respondents ranked their experience with Direct File as “excellent” or “above average.” When asked what they particularly liked, most respondents cited Direct File’s ease of use, trustworthiness and that it was free.
Additionally, 86% of respondents said that their experience with Direct File increased their trust in the IRS, and 90% of survey respondents who used customer support responded that their experience was “excellent” or “above average.”
However, the agency declined to say whether it anticipates a full roll out soon. Instead, it’s “reviewing the results of the pilot and gathering feedback to help us determine our future course involving Direct File. We anticipate making an announcement about future plans later this spring,” Werfel said.
Industry remains skeptical
Detractors say Direct File isn’t necessary with so many free filing options run by private companies and volunteer organizations available. They say the numbers from the pilot program show little appetite and need for an IRS run free file, especially considering the costs of the program.
“Only in Washington (would this be) hailed as a ‘huge success,’” the nonprofit American Coalition for Taxpayer Rights (ACTR), which represents tax preparation, tax software and financial services settlement companies, said earlier this month. At the time, the IRS estimated the number of filers was around 100,000, slightly less than the 140,000 that ultimately utilized the service – and a very small fraction of the 19 million eligible this year to use Direct File.
A Treasury spokesperson said in February the department expected “at least several hundred thousand” to participate. In March, the IRS downgraded that goal to 100,000, which it exceeded.
Through the end of the pilot, the IRS said it spent $24.6 million. Direct File’s operational costs – including customer service, cloud computing and user authentication – were $2.4 million.
However, the Government Accountability Office issued a report earlier this month criticizing the IRS for not properly accounting for all the program’s costs, including start up needs. “Without a comprehensive accounting for costs, estimates could understate the full amount of resources required for IRS to develop and maintain a permanent Direct File program,” GAO said.
ACTR said “the millions of dollars spent on Direct File would be better directed towards improving IRS customer service and promoting Free File, a long-standing public-private partnership that provides free returns to low-income Americans.”
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Others, though, sided with the government in declaring Direct File a success and hoped for an expansion of the program.
“The two essential things the IRS needed to do to make this year’s pilot a success were to build a stable tool that worked and to make sure that users liked it and found it easy to use,” said Adam Ruben, vice president of campaigns and political strategy at Economic Security Project. “Our survey shows that Direct File users loved this free and simplified tax filing option and found it simpler, cheaper, and faster. That makes this year a big win and a strong foundation for expanding Direct File next year to more states, more tax situations, and with the IRS filling in more of the data it already has.”
What is Direct File?
The Direct File pilot was designed to test the feasibility of building a system to allow taxpayers to file their federal income tax returns directly with the IRS for free.
The latest tax season was the first time it was available, but only to a limited number of taxpayers from a dozen states. The program was mandated under the Inflation Reduction Act.
Who used Direct File in 2024?
Taxpayers from Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State and Wyoming who had simple tax returns could file using Direct File.
If a user’s tax situation was out of scope of the pilot, they were directed to other options to complete their tax returns, including the separate Free File program that provides free software from the private sector, the IRS said.
California had the most users with 33,328, followed by Texas with 29,099 and Florida at 20,840. New York with 14,144 users and Washington at 13,954 rounded out the top five.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
Source: IRS’ Direct File pilot ends 2024 tax season with 140,000 filers
