On Thursday, the Internal Revenue Service (IRS) announced the decision to make Direct File a permanent method for filing federal tax returns starting with the 2025 tax season. This follows a successful pilot during the 2024 filing season, where over 140,000 taxpayers in 12 states utilized Direct File. The IRS is now looking to broaden the program’s reach, including a potential expansion to cover more tax situations and to collaborate with all interested states next year.
The IRS is aiming to increase the eligibility for Direct File, making it available to more taxpayers and supporting a wider range of tax situations, particularly those affecting working families. The agency is considering various options to expand the service nationally and expects to announce new state partners and eligibility criteria in the upcoming months. The goal is to incorporate most common tax situations into Direct File over time.
The IRS’s decision was influenced by positive feedback from the pilot program, where users expressed high satisfaction with Direct File. According to a survey, 90% of participants rated their experience as excellent or above average, praising the system’s ease of use and trustworthiness. Additionally, the Net Promoter Score for Direct File was +74, indicating a high likelihood of users recommending the service to others.
Direct File is not intended to replace other filing methods, such as those provided by tax professionals or commercial software. It serves as an additional, no-cost option for taxpayers. The IRS remains committed to its partnership with Free File Inc. and has recently extended their agreement for another five years. Efforts will continue to enhance all free filing options, including the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs.
The IRS has also recognized the role of Direct File in its digital transformation efforts. The pilot allowed for testing customer service innovations, with Live Chat being the primary support channel. This integration within Direct File enabled support to scale with user demand. The IRS plans to use insights from the pilot to strategically improve Direct File’s availability and functionality in the future.
The news sent shares of TurboTax maker Intuit (NASDAQ:) nearly 6% lower. However, the company doesn’t see a significant impact on their business from the IRS initiative, calling it a “solution in search of a problem.”
“Today’s decision by Treasury and the IRS to expand Direct File doesn’t change the fact that this program is a solution in search of a problem and every American can already file their taxes for free, without any cost to the government or taxpayers” an Intuit spokesperson said. “This was true on the day Direct File was launched and remains true today.”
“Out of those eligible for Direct File, only 140,000 taxpayers, or approximately 0.7% used it. In stark contrast, TurboTax has filed millions of completely free tax returns annually and has provided more than 124 million free tax returns over the past decade.
“The data is clear, taxpayers continue to want and benefit from having an advocate when filing their taxes to help ensure that they pay only what they owe and receive the maximum refund they are eligible for. Intuit TurboTax is proud to advocate for taxpayers, and provides a tax return lifetime guarantee for accuracy and maximum refund.”
Shares of H&R Block (NYSE:), another leader in tax preparation, saw its stock fall 1.7% today.
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