IRS Direct File

IRS Direct File was a free filing service that the Internal Revenue Service built and ran itself: an eligible taxpayer answered a guided set of questions on a government website and submitted the finished federal return straight to the agency, without buying software and without paying a preparer. It launched as a pilot for tax year 2023 in 12 states and expanded to 25 states for tax year 2024. On October 2, 2025 the Treasury Department delivered a report to Congress announcing that the IRS would suspend the program and pointing taxpayers instead toward IRS Free File, the long-running partnership in which private companies supply the software.

Treasury's own word was "suspend" rather than "repeal", and the difference matters, because nothing in the law abolished the program. What is settled is that the service stopped. The IRS's tax tip opening the 2026 filing season named IRS Free File, Free File Fillable Forms, MilTax and the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs as the free options, and did not mention Direct File.

The difference that mattered was who wrote the software. Under Free File the agency partners with private tax-software companies, and an eligible taxpayer reaches a partner's product through IRS.gov. Under Direct File the IRS was the provider: the interview, the calculations and the submission all sat inside a government system. So the decision to stop it was the government's own to make, with no partner agreement to renegotiate.

Eligibility was narrow, and it was not an income test. Direct File carried no adjusted gross income cap at all. The gates were where the taxpayer lived and what the return contained. For tax year 2024 a user had to live and work for the full year in one of the 25 participating states, and the system supported a short list of income sources, which Treasury gives as:

• Form W-2 wages
• Form SSA-1099 Social Security benefits
• Form 1099-G unemployment compensation
• Form 1099-INT interest income
• Form 1099-R retirement income
• Form 1099-MISC Alaska Permanent Fund Dividend

Deductions were limited to the standard deduction plus student loan interest, educator expenses and health savings account contributions. Credits were limited to seven: the earned income tax credit, the child tax credit, the credit for other dependents, the child and dependent care credit, the premium tax credit, the credit for the elderly or disabled, and the retirement savings contributions credit. Anyone with self-employment earnings, rental or business income, or something to itemize was out of scope. Direct File also never prepared a state return. In some participating states federal data could be handed to the state's own free filing tool with the taxpayer's consent, and that was the extent of it.

Treasury's stated reasons were cost, participation and competing priorities. Section V of the October 2025 report is organized as four steps, and Step 2 is headed "Suspend the Direct File Program". Its opening sentence reads: "The IRS will suspend Direct File pilot program due to the program's high costs, limited participation, and the agency's need to focus resources on other priorities." The report adds that the benefits intended under Direct File "can be achieved more efficiently, and for a broader population, through enhancements to the Free File program."

The statute did not end the program; it ordered a report. Section 70607 of Public Law 119-21, the July 2025 reconciliation law, is headed "Task Force on the Replacement of Direct File", but its operative text does something narrower. It appropriates $15,000,000 and directs Treasury to deliver a report to Congress within 90 days of enactment covering four things: the cost of enhancing public-private partnerships to provide free filing for up to 70 percent of taxpayers and to replace any direct e-file program the IRS runs; taxpayer opinions about a government-run service versus a private-sector one; the feasibility of a new approach; and the cost of building and running a free government direct e-file system. Treasury's October 2 report was that deliverable. The suspension was the answer Treasury gave, not an instruction the statute issued.

Most of Treasury's plan was still ahead when the report was issued. Step 1 was a public-awareness push for Free File. Step 3 was a fresh taxpayer survey on government-run versus private-sector free filing, funded from money available beginning October 1, 2025, together with a Free Filing Modernization Summit chaired by senior Treasury officials. Step 4 was to settle what counts as a "free return", collect usage data from commercial software providers, and prepare a supplemental report to Congress on the future of free tax filing. Until that supplemental report is issued, what replaces Direct File is an open question.

Treasury described Direct File as a do-it-yourself tax preparation and filing tool with guided assistance. A session ran in four stages.

1. Eligibility screening. The tool asked where the taxpayer lived and worked and what the return would contain. A state outside the participating list, or an income type, deduction or credit outside the supported set, ended the session there.
2. A guided interview. The taxpayer answered questions rather than filling in forms, and the system did the calculations. For tax year 2024 it could also import a limited amount of data from the taxpayer's IRS online account, including Form W-2 data where the agency already held it.
3. Submission to the IRS. The completed federal return went directly to the agency from the same system, with no third party in between.
4. The state return, handled separately. Direct File never prepared one. In some participating states the federal data could be transferred to the state's own free filing tool if the taxpayer consented.

What it cost, and how that figure was reached. Treasury reported the cost twice, once per season, and each figure is a division a reader can check. For the tax year 2023 pilot the IRS reported spending at least $31.8 million through April 20, 2024 against 140,803 accepted returns, which Treasury states as $225.85 per return. For tax year 2024, reported costs had reached at least $41 million by April 15, 2025 against 296,531 returns, which Treasury states as $138.27 per return; $41 million divided by 296,531 is about $138, which is where the per-return figure comes from. Treasury is explicit that both totals understate the real cost, because support from other parts of the agency, including the Office of Chief Counsel, online services, communications and submission processing, was not fully captured, and because costs tied to state returns were excluded.

The pilot's headline number also sits at the end of a funnel. In that first season 395,483 tax units began a return in Direct File, 161,042 submitted one, and 140,803 were accepted by the IRS.

Pros

• The federal return was free end to end, and the Treasury report records no add-on services offered to Direct File users, in contrast with commercial free products, which the report says may be paired with paid extras such as a refund advance or audit protection.
• There was no income cap. Eligibility turned on residence and on the contents of the return, so a high earner whose return was nothing but wages could qualify while a modest-income filer with self-employment income could not.
• It could pull a limited amount of information from the taxpayer's IRS online account, including Form W-2 data when the agency had it.
• Users who finished it rated it highly. In the IRS's after-action survey of the pilot, 68.6 percent of the 14,587 people who rated their experience called it excellent, though Treasury notes the survey reached only taxpayers who completed a return and so is a selected sample.

Cons

• The scope was narrow. Self-employment earnings, rental or business income, and itemized deductions each put a taxpayer outside the program.
• The residence gate was strict, requiring a full year of living and working in a single participating state.
• It never prepared a state return, so a user in a state that imposes an income tax still had that filing to do somewhere else.
• Treasury described the program's costs as relatively high compared with other free filing options, and says its own published figures understate them.
• Take-up stayed small. Tax year 2024 returns filed through Direct File were under 0.5 percent of roughly 146 million returns.
• It is suspended, so anyone who had settled into it needed a different route the following season.