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Key Takeaways
- The IRS said 140,803 people filed their federal taxes in a trial run of the new Direct File system, which lets people file their taxes on the IRS website for the first time.
- The system got good reviews from users, but sparked opposition from the tax prep industry, which it competes against.
- The IRS said it’s deciding the future of the program and will make an announcement later this spring.
The 2024 tax season marked a historic first when 140,803 Americans in 12 states did something that people in other countries have taken for granted for decades: they logged on to a government website and filed their federal tax returns.
The IRS tested out its Direct File system this year, which for the first time allows people to file their taxes online without going through a private third-party service like TurboTax or H&R Block. The system—which only covered basic tax filing scenarios, accepting only certain kinds of income and tax deductions—earned positive reviews from early users , but sparked a backlash from tax prep companies whose business it threatens.
IRS’s Direct File By The Numbers
Users claimed $90 million in tax refunds while saving an estimated $5.6 million in tax prep fees, the IRS said Friday.
The agency said far more people checked out the program than ultimately filed a return, with 3.3 million visiting the website.
About 19 million people total were eligible for the pilot, the IRS estimated, meaning that less than 1% of those who could have used the direct filing option actually did. Still, the number of users was more than the 100,000 the IRS had planned for, and 90% of users said the service was “above average” or “excellent,” according to a user feedback survey cited by the IRS.
The pilot cost the IRS $24.6 million to run not counting anything spent by the U.S. Digital Service, a government technology agency, which helped develop the website, the Treasury Department said.
Private Tax Preparers Aren’t Happy, Obviously
The tax prep industry criticized the program’s cost and relatively small number of users, pointing out that millions used free tax filing options provided by private services, and that taxpayers have always had the option to file their taxes for free via pen and paper, a spokesperson for TurboTax said in a press release.
The IRS, however, estimates that it’s cheaper for the government agency to process electronic returns than paper ones. Every paper form costs the IRS $7.33 to process, versus $0.28 for an electronic one, according to the IRS Taxpayer Advocate Service.
Many private companies allow people to file their federal returns without charge, though often with restrictions on income and what kinds of deductions can be claimed. TurboTax, for example, offers a free filing service but it doesn’t support itemized deductions, unemployment income, or stock sales, meaning only about 37% of taxpayers qualify for it.
Whether the Direct File program will be offered again, or expanded, remains unclear.
“The Treasury and IRS will continue to analyze results of the pilot before deciding on the future of Direct File in the coming weeks,” The Treasury Department said in a press release.
A decision will be announced in the late spring, Werfel said in a statement.