Taxpayers want Direct File, but relatively few have used it

The Internal Revenue Service's Direct File free tax prep program is attracting interest this tax season, according to a new report, but lack of familiarity and budget cuts at the IRS may doom it for next tax season.

For the report, released Wednesday by the Tax Policy Center at the Urban Institute and the Brookings Institution, researchers examined December 2024 data from Urban's "Wellbeing and Basic Needs Survey." They found that among those who filed a tax return last year, 73% reported they would be somewhat or very interested in using Direct File if they had access to it. 

Interest in Direct File was high both among those who had paid to file their taxes (69%) and those who filed their taxes for free (85%) in 2024. But around two-thirds of tax filers (68%) also agreed with the statement that they do not know enough about Direct File to feel comfortable using it, and 88 percent agreed with the statement that their most-recent filing method met their needs.

U.S. taxpayers who expressed interest in Direct File prioritize ease of use and cost when choosing how to file their tax returns. Those not interested in using Direct File were more likely to prioritize accuracy, including a reduced chance of being audited, followed by ease of use.

The Direct File program may be on the chopping block, however. The Elon Musk-led Department of Government Efficiency reportedly eliminated the 90 employees of the so-called 18F digital services team that helped develop the Direct File program, according to Reuters. A separate report released earlier this week by the Treasury Inspector General for Tax Administration found that IRS claims regarding the Direct File pilot program last tax season omitted more than a third of costs. TIGTA found that the $24.6 million the IRS reported as the cost to develop and operate the Direct File Pilot didn't include all the costs incurred by the government. The IRS's reported totals did not include an estimated $8.8 million for costs incurred by the Office of Management and Budget for employees detailed to the IRS to help develop and pilot Direct File and costs incurred to create or leverage existing accounts through the IRS's Credential Service Provider. The IRS also did not include all the costs of IRS employees from other functions who collaborated to support Direct File. 

During the pilot, 423,450 taxpayers created or signed in to a Direct File account. However, only about one-third of these taxpayers (140,803 taxpayers) submitted a tax return that was accepted by the system through Direct File. The pilot program was available in 12 states last year and expanded to 25 this year. An estimated 30 million taxpayers across those 25 states can use Direct File in the ongoing 2025 tax filing season.