The Internal Revenue Service’s (IRS) Direct File pilot – a new online tax return filing service for individual taxpayers – was successful in its initial pilot in 2024 but should be expanded to improve equity and address challenges, the Government Accountability Office (GAO) said in a new report.
Direct File allows taxpayers to file their taxes for free directly with the IRS and was piloted during the 2024 tax season across 12 states, allowing more than 140,000 taxpayers to file their tax returns electronically. On May 30, the IRS made the program permanent and will roll the tool out to an additional 12 states for 2025 – making it accessible to 62 percent of individual taxpayers.
GAO, in its Dec. 19 report, said that Direct File received top scores from 90 percent of taxpayers who used the tool while fulfilling long-term goals of Congress and the IRS to persuade some paper filers to transition to electronic filing. The program also largely benefited low-income taxpayers, with 24 percent of users falling below the poverty line and the tool being credited with facilitating a significant number of participants benefiting from the Earned Income Tax Credit and the Child Tax Credit.
While deeming the program successful, GAO warned that the IRS needs to address delays in recruiting and training customer service representatives, and offer rollouts to all 50 states to avoid equity concerns for taxpayers.
“IRS limits participation in Direct File to taxpayers who live in certain states, which facilitates coordination between federal and state tax filing,” the report says. “However, GAO found that IRS could face challenges in reaching agreements with all states, which raises equity concerns for taxpayers unable to access Direct File due to where they live.”
Numerous state officials not participating in Direct File said they’re interested in the 2024 Direct File pilot but cite low user engagement, alternative filing options, and competing priorities, said GAO. Some states also need gubernatorial or legislative approval to join.
GAO’s calls for program expansion fall amid House Republicans calls for President-elect Donald Trump to end the program on the first day of his new administration in January. In a letter to Trump, Republicans called the program “unauthorized and wasteful.”
Despite political controversy over the program, GAO encouraged further expanding the program to also prepopulate tax returns with information already on file, such as wages reported by employers. The IRS offered limited prepopulation in 2024 during the Direct File pilot and is considering expanding the program, according to GAO, which recommended that the tax agency identify additional data and develop a testing plan for accuracy to expand the program. All of those steps, GAO said, could “reduce taxpayer burden.”
Research on prioritizing expansions based on taxpayers’ needs and preferences could also help the agency expand Direct File into more complex tax situations, the report says. Certain deductions and additional income revenues disqualified some taxpayers from using the tool last filing season.
“According to IRS estimates, about 21.7 million taxpayers in the 24 states expected to participate in 2025 would have been eligible for Direct File if the same tax situations were supported as during the 2024 pilot,” said GAO. “With IRS’s decision to expand Direct File to support the additional tax situations described above, 30.3 million taxpayers will be eligible for the program.”
While the IRS agreed with most recommendations, it raised concerns about national expansion, citing potential taxpayer and state agency burdens. GAO, however, noted that access should not depend on state participation.
When announcing the 2025 tax season’s participating states, the IRS said in October that additional states plan to join Direct File in 2026, or have expressed interest in joining.
