Media reports on the IRS’s Direct File pilot program tend to repeat a few key talking points: claiming that the program is “free,” widely accessible, and popular with taxpayers. But these misleadingly rosy narratives overlook serious flaws with the program and its origin. Direct File was developed without the consent of Congress, doesn’t serve the vast majority of taxpayers, and is not truly free.
These concerns are finally being recognized in Washington. The House of Representatives recently passed what’s been dubbed the “One Big Beautiful Bill,” which includes a provision to terminate Direct File. This follows reports that the Trump administration is also considering ending the program administratively.
Predictably, these developments have triggered a wave of coverage and commentary lamenting the possible demise of Direct File — but much of it repeats myths that don’t hold up under scrutiny.
First, Direct File advocates handwave away the fact that the program was the product of the IRS vastly overreaching its statutory authority. The Inflation Reduction Act (IRA) provided $15 million for a study on the feasibility of an IRS-run tax prep tool — not for the creation or launch of a permanent program. But the IRS moved forward anyway, developing and rolling out Direct File largely in stealth.
Former IRS Commissioner Daniel Werfel made several public statements about the agency’s intentions that obfuscated the IRS’s intentions from Congress. The result was a troubling case of executive overreach. Taxpayers deserve better than a federal agency sidestepping Congress to spend millions on a program it was never authorized to create.
Another myth is that Direct File is free. While it may not charge users, Direct File has already cost taxpayers millions. After exhausting the $15 million allocated by the Inflation Reduction Act, the IRS quietly redirected money intended for other purposes, such as enforcement and taxpayer services, to keep the program afloat.
The Treasury Inspector General for Tax Administration (TIGTA) reports that the IRS claimed $24.6 million in costs, but that figure excluded key expenses like labor from other agencies, integration with state systems, and IRS staff diverted from core duties. Once fully accounted for, the pilot costs nearly $79 per user, far above the IRS’s own estimate of $26.60. And the price tag would only grow if the program were expanded nationally and modified to handle more complex taxpayer situations.
Nor did Direct File help average taxpayers. In reality, Direct File only served a narrow band of filers — those with simple W-2 income and limited credits or deductions. Tens of millions of common taxpayers were excluded, and some users were later notified that they could claim additional credits that Direct File did not allow. Expanding the system to handle more complex yet very common tax situations would be a massive and expensive undertaking. Such a system would require the IRS to vacuum up even more financial data on taxpayers than it currently collects, raising serious concerns about privacy and data security.
Letting the IRS collect your information and then prepare your returns is the ultimate example of inviting the fox into the henhouse.
Lastly, Direct File advocates claim that it would fill a gap in free tax filing options. But the IRS already offers free filing through the longstanding Free File program — a public-private partnership that’s served millions, offers a broader range of services, and has a 98 percent satisfaction rate. But while Free File has been underpromoted — the Government Accountability Office reports that one-third of taxpayers are not aware that they are eligible to use Free File — Direct File has been propped up with marketing, tech staff, and millions of dollars in funding.
Instead of doubling down on a costly, duplicative filing program, lawmakers should focus the IRS on what taxpayers actually need: better taxpayer assistance, modernized technology, and a simpler tax code that reduces the need for assistance in the first place. The FAIR PREP Act, introduced by Sen. Marsha Blackburn (R-TN) and Reps. Adrian Smith (R-NE) and Chuck Edwards (R-NC) would prevent the IRS from building tax prep software altogether — and keep taxpayer dollars focused on the Service’s core responsibilities.
Taxpayer dollars are already overextended amid trillions in deficit spending. The last thing taxpayers need is a resource-draining, redundant program that solves the wrong problem. Congress should pull the plug on Direct File for good.
Demian Brady is Vice President of Research at National Taxpayers Union Foundation.
READ MORE:
Hitchhiker’s Guide to the Tax Code: America on the Brink of a Paradigm Shift