IRS’s Direct File: A Win for Taxpayers Under Threat After Tax Season

Last year, the Internal Revenue Service (IRS) launched a first-of-its kind tool, Direct File, that allowed taxpayers to file their taxes directly with the IRS for free. Enabled by the Inflation Reduction Act (IRA), Direct File marked a huge and long-awaited win for taxpayers, enabling them to forgo the use of costly private preparers like TurboTax and H&R Block. But recent rhetoric—and administrative actions to lay off thousands of IRS workers—from Elon Musk and the Donald Trump administration leaves the long-term fate of Direct File at worst doomed and at best uncertain. For the time being, Direct File is open and operational. If Trump and Musk follow through on rescinding Direct File, millions of Americans who benefit from the program will be forced back to paying billions to extractive private-sector tax preparers. Direct File’s destruction would be a huge backslide for taxpayers, but Direct File’s creation—and its achievements in its first two years in operation—demonstrate how a stronger federal government can make the tax system work better for everyone.

Filing taxes, a requirement for the majority of people living in the US, is a key way people interface with their government. It’s also the way the government administers—and thus the way people are able to access—the vital programs that enable families and communities to thrive, including the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). It’s also the backbone of most other safety net programs in the US. Social Security and Medicare, for example, are designed to be funded and to have eligibility criteria set through the tax system.

Contrary to years of conservative talking points, an equitable tax system, even a complex one that entails filing taxes and receiving the refunds, credits, and other benefits owed taxpayers, shouldn’t—and doesn’t need to—be hard. In fact, dozens of other countries make tax filing free and significantly less time consuming, including by proactively calculating what a taxpayer owes them. That’s not the case in the US, where an individual taxpayer spends an average of 13 hours and $240 doing their taxes each year. 

Filing is so burdensome and costly in the US because the private tax preparation industry profits from it and correctly recognizes it as a sustained source of customer business. Public-sector competition is the industry’s biggest threat. In the years leading up to the IRA’s passage, the tax preparation industry was effectively a duopoly with Intuit (TurboTax’s parent company) and H&R Block capturing 73 percent and 21 percent, respectively, of the tax preparation software market share. Led by giant Intuit, the tax preparation industry has spent decades actively working—via machinations including incessant lobbying and scammy marketing and customer tricks—to prevent the federal government from offering free tax preparation services directly to consumers and thus threatening their business model. Decades of intentional underinvestment in the IRS had left the IRS reliant on antiquated technology and therefore on private industry to help the public meet their filing obligations.

Direct File changed that dynamic.

The Direct File pilot, which launched in spring 2024, and the IRS’s subsequent decision to make the program permanent didn’t just introduce public competition into a captured industry. It introduced good competition: 90 percent of taxpayers rated their experience as Excellent or Above Average. In the first year of the limited pilot, the program enabled more than 140,000 taxpayers to claim $90 million in refunds and saved users $5.6 million in tax preparation fees. 

The IRS has tried to offer free filing tools and resources to certain populations in the past, but these have largely been limited in scope or fashioned as public-private partnerships that tax preparation companies have been able to leverage for their own gain. For instance, in the early 2000s, the IRS worked with private industry to begin offering a program called Free File, whereby taxpayers could file for free using existing private software. But the program was operationally reliant on private tax preparers, creating huge conflicts of interest that led to sabotage. For years, H&R Block and TurboTax concealed the IRS-enabled, no-cost option available to taxpayers and pushed customers toward more expensive alternatives. This was the subject of a class-action lawsuit that was settled in 2022 after Intuit agreed to pay a historic $141 million to the nearly 4.4 million taxpayers scammed out of free tax filing. 

Direct File helped solve this problem by introducing a public option, where the IRS offered filing software directly to taxpayers for free. But now, along with a right-wing laundry list of other federal entities and programs that benefit consumers that they want gutted, Trump and Musk may be looking to shutter Direct File—precisely because it makes it easier and free for working Americans to access the credits and refunds to which they’re entitled without the use of private software.

That Trump and Musk have set their sights on Direct File is no surprise—or accident. It follows a conservative playbook of undermining effective government programs to support their arguments that the public programs don’t work. Anti-tax lawmakers have despised Direct File from the moment it was enabled through the IRA. And their hatred didn’t fade after the program was rolled out to high praise from taxpayers. Just a few weeks ago, Republican lawmakers sent Trump a letter demanding that he eliminate Direct File on “day one” of his term. (This most recent letter is just one in a series of statements over the past few years making the same tired call for the program to be closed.) And, though Musk previously expressed support for the creation of an app that sounded suspiciously similar to Direct File, he’s since called for the core tech team responsible for overseeing the Direct File platform to be “deleted.”

The good news for this filing season is that Direct File is open for taxpayers to use. Newly appointed Treasury Secretary Scott Bessent promised during his confirmation hearing to keep the program operational through the end of filing season 2025. That means that through the close of tax season on April 15th, 2025, taxpayers can use Direct File if, in 2024, they lived and worked in the 25 states where the program is available. What happens to Direct File after April is yet to be determined—but the way Trump and Musk have been ruthlessly slaughtering other federal agencies and programs is a giant red flag.

It’s reprehensible that the Trump administration seems poised to undo a program that was a huge achievement, not only for the IRS teams responsible for building the user-friendly platform quickly but also for the millions of Americans who were able to eschew paid tax preparers. Trump and Musk potentially rescinding Direct File is a setback that will harm millions of taxpayers. But its existence proves that not only can we make real progress toward a tax system that works for working people, but we can have an entire federal government that does. And, much to the frustration of middlemen and rent-seeking industries, we will achieve that vision again.