US Treasury Ends Direct File Among States, Restoring Prior Free File Option

2 minutes

The US Treasury has recently issued a report to the US Congress on the suspension of the Internal Revenue Service's (IRS) Direct File tool, intending to replace it with an improvement of its prior Free File Program (see Note).

The report, the result of a direction by Public Law No. 119-21 (the One, Big, Beautiful Bill Act or "OBBBA") for the Department of the Treasury to evaluate alternatives to Direct File, concluded that low participation and high costs on the federal government were the principal drivers in the tool's suspension. The Department estimated that the program cost USD 41 million to operate for the tax year 2024, amounting to USD 138 per tax return. Under the Direct File program for 2024, 296,531 returns had been filed by users and accepted by the IRS as of 20 April 2025, which according to the Report constituted less than 0.5% of the approximately 146 million returns total filed for tax year 2024.

The Report followed the IRS's e-mail communication with the 25 Direct File participating states that the tool would not return in calendar year 2026 or the foreseeable future. The IRS further updated its website for Direct File, now providing that "Direct File is closed. More information will be available at a later date."

The IRS's e-mail further indicated that taxpayers who filed through Direct File will no longer be able to access their returns through the Program's webpage but can obtain a return transcript via their online account or by mail.

The Report further recommended that going forward, the IRS should:

  • enhance awareness of the Free File Program, which includes convening a "Free Filing Modernization Summit;"
  • conduct surveys on taxpayer filing preferences and opinions;
  • define what constitutes a "free return" across all filing options available to taxpayers, collect more data from software providers; and
  • develop a supplemental report to Congress with updates on pursuing their recommendations.

Note: The Free File program is a public-private partnership between the IRS and Free File, Inc. (FFI), a tax-exempt section 501(c)(4) social welfare organization launched for the 2003 filing season. The program provides taxpayers with free access to commercial tax preparation software for federal return preparation and e-filing.

Report from the IBFD Newsroom. Follow our reporting on this via our daily Tax News Service (subscribers only).

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