MW Taxpayers love the IRS's free Direct File tax-prep tool. The program may still be doomed.

Andrew Keshner

President Trump's Treasury Department calls Direct File 'a failed program'

Casey Lantz had a particularly painless time filing her taxes this year - though it may be the last time she can say that.

The Seattle resident spent around five minutes checking an income-tax return that was already mostly completed. After making some tweaks, she walked away with a $450 refund and accomplished the task without spending money on filing fees.

Lantz used the Internal Revenue Service's Direct File program, a free tax-preparation platform for simple tax returns that's available in 25 participating U.S. states.

"It was super-duper easy. I was thrilled," Lantz said. Her enthusiasm mirrored one survey of users in which nearly 9 in 10 said they'd recommend the platform to family and friends.

Direct File fans like Lantz hoped this year would be the program's prime-time debut after last year's pilot run in 12 states. But it might be its swan song instead: The Treasury Department says the program, created during former President Joe Biden's administration, is underutilized and too costly. Meanwhile, the tax-preparation industry has questioned the need for the program, and Republicans have been wary of the IRS getting involved with tax prep.

While President Donald Trump's administration hasn't yet made a final decision about Direct File's future, "it is a failed program," a Treasury spokesperson said. "Given the terribly low utilization rate, it is a very disappointing program that has cost the taxpayers tens of millions per year."

Approximately 200,000 people have used the program this year, the spokesperson said. The IRS was expecting that number to be somewhere between 920,000 and 3.7 million people, according to a Government Accountability Office report.

While the cost of operating Direct File this year has yet to be calculated, the IRS spent at least $33.4 million on last year's test run, according to a different watchdog report. An audit report issued last month by the Treasury Inspector General for Tax Administration cast doubt on whether the IRS was counting the full tab of expenses.

The IRS is expecting to have at least 140 million returns filed by Tuesday, which is the last day to pay 2024 taxes, file an income-tax return or obtain a deadline extension to Oct. 15.

Related: How do I apply for a tax-filing extension? What time are taxes due? Your last-minute Tax Day questions, answered.

The Direct File program is open until Oct. 15 for people who have requested extra time to file, according to the IRS website. It can handle returns for many wage earners and Social Security recipients, but it's not currently equipped for the tax needs of self-employed taxpayers or investors. People who make more than $125,000 in household wages also may not be eligible to use the program.

The Biden administration launched Direct File in 2024. At his January confirmation hearing, Treasury Secretary Scott Bessent said Direct File would continue running this year. Then, he told senators, he would study its impact.

But the program hasn't been given a fair shake, advocates said, arguing that it has been set up for failure by an administration that does not want to see it flourish, they said.

First there was a confusing February social-media post about the office that had created Direct File from Elon Musk, the Tesla $(TSLA)$ CEO, X owner and leader of the so-called Department of Government Efficiency, said Adam Ruben, director of Economic Security Project Action, an advocacy group pressing for more generous tax rules for low- and middle-income families. It had many people wrongly thinking that Direct File had been eliminated, according to Ruben.

Additionally, the IRS outreach staff tasked with raising awareness about the program last year was laid off alongside thousands of other IRS staffers by the Trump administration, he said. While major tax-prep companies like Intuit $(INTU)$ and H&R Block $(HRB)$ advertise all over, Ruben said, there's been no promotion by the IRS of the platform.

"The administration and DOGE have intentionally tied the IRS's hands behind its back in the promotion of this program," Ruben said. "DOGE has only one setting: cut, cut, cut. That's the only thing they are here for."

Tax-prep companies call Direct File 'costly' and 'unauthorized'

Americans are spending $290 on average to prepare their taxes, according to the latest IRS estimates.

Direct File joined a range of other free tax-preparation options, including IRS Free File, a partnership with software companies open to people making up to $84,000 this year. There's also commercially available free tax-prep software, as well as certain in-person tax-prep programs for low- and moderate-income households.

The tax-preparation industry has suggested there's no need for another free filing choice. Direct File's low uptake speaks volumes, said David Ransom, counsel for the American Coalition for Taxpayer Rights, a trade association representing major tax preparers including Intuit (INTU), the maker of TurboTax, and H&R Block (HRB).

"At the end of the day, we think it's unnecessary, it's costly and it's unauthorized," Ransom told MarketWatch.

Republicans have fumed about Direct File's origin story. It started as a study of the feasibility of an IRS-run tax-filing program as part of a major facelift for the IRS in the 2022 Inflation Reduction Act. Once the study came out, then Treasury Secretary Janet Yellen directed the IRS to create the program - which congressional Republicans viewed as a bypass of their lawmaking authority.

Sen. Marsha Blackburn, a Republican from Tennessee, has been one vocal critic. "The IRS created an undeniable conflict of interest when it took on the role of both tax preparer and auditor through the Direct File program," she said in a statement.

Blackburn supported "dismantling this wasteful program that the Biden administration sidestepped Congress to create, and I introduced the FAIR PREP Act earlier this year to put an end to this overreach once and for all." The bill would explicitly forbid the IRS from participating in tax preparation without legislative approval.

Direct File users rave about the program

There's Capitol Hill maneuvering, and then there are people who just want to complete their taxes with little hassle and at minimal cost. By that measure, some Direct File users have raved about the program this year.

Direct File users who need to file a state income-tax return are funneled to a state equivalent of the platform. Code for America is a nonprofit organization behind software in five states that latches onto the Direct File platform.

The nonprofit surveyed users who had finished their state return - usually in a matter of minutes - and 87% said they'd recommend Direct File and the corresponding state version, according to Courtney O'Reilly, associate program director for tax benefits at Code for America.

"They are eagerly telling us they are having a good experience," O'Reilly said.

In theory, results from another survey suggest people like the idea of the IRS getting into tax preparation - but it's complicated. A YouGov survey conducted in March found that 85% of people supported the IRS offering a free online tax-preparation and filing tool. Democrat and Republican participants largely agreed.

But nearly two-thirds of respondents said they would not use the Direct File or Free File options. Furthermore, participants were more wary of the idea of the IRS calculating tax bills and refunds by itself. There were 38% who said they would agree to the idea and 34% who would rather do their taxes themselves.

Lantz, the Seattle taxpayer who enjoyed her Direct File experience, is a program coordinator for the United Way of King County's no-fee tax-preparation program. So far, the volunteer-run program has filed approximately 11,000 returns, and Lantz herself has handled around 75 returns.

Lantz had three clients on Monday who said they paid $200 last year to file taxes that could've easily been handled by the Direct File program. "Even with relatively simple returns, people think it's more complicated than it is," she said.

The IRS-run option takes out guesswork, especially if the tax agency is supplying the information it already has, Lantz said. She used the program last year, too, and the IRS's ability to fill in her income information from the previous year made an already quick process even quicker, she said.

This tax season, Lantz has told people Direct File could be an option for them to do their taxes and save some cash. "I haven't had a single person know it existed," she said.

-Andrew Keshner

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April 15, 2025 16:28 ET (20:28 GMT)

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