Treasury moves to shut down IRS Direct File
RIP IRS Direct File
Treasury told Congress it wants the IRS to pull the plug on Direct File, the government’s homegrown tax software, and focus instead on fixing Free File and volunteer prep programs.
The report, dated Oct. 2 but released Nov. 5, 2025, says Direct File reached only a sliver of taxpayers, cost hundreds of dollars per return, and distracted the IRS from bigger modernization priorities. Treasury says it can expand free filing faster and more cheaply by improving promotion, oversight, and coordination with private software partners.
The Law in Play
Under Section 70607 of the One Big Beautiful Bill Act, the Treasury had to tell Congress whether the IRS should continue to run Direct File or find another way to offer free returns.
Supporters say taxpayers should be able to file directly with the IRS, especially when commercial software nudges them toward paid upgrades. Critics point out that Direct File served less than 1% of filers, cost tens of millions to run, and duplicated services the private sector already provides for free.
Timeline
2023–2024: IRS pilots and expands Direct File. About 140,000 returns were accepted in 2023, and just under 300,000 in 2024. The cost came to roughly $226 per return in the first year and $138 the next.
2024: Surveys show most people have never heard of Direct File. Even when told about it, many said they’d stick with their current software if it were free and handled state returns.
2024 filing season: Roughly 146 million returns filed nationwide. Only 0.2% went through Direct File. About 6 million used Free File, VITA, or TCE programs.
Oct. 2, 2025: Treasury issues its report, calling for a pause on Direct File and a reboot of free-filing outreach.
Nov. 5, 2025: The report is made public.
The Larger Story
This marks a full retreat from the idea of government-run tax software. Treasury’s argument: instead of building its own filing tool, the IRS should make existing free options visible and trustworthy.
Free File has long been a missed opportunity—tens of millions qualify, but few use it because they either don’t know it exists or hit confusing eligibility limits. Treasury’s plan includes:
defining what counts as a “free return,”
tightening data reporting by software providers,
boosting funding for VITA and TCE sites, and
holding a “Free Filing Modernization Summit” to rebuild trust in the program.
It’s a pivot from coding to coordination.
What It Means in Practice
Expect Direct File to disappear for the 2025 filing season. IRS resources will shift to promoting Free File, VITA, and TCE.
Practitioners should review who qualifies for Free File (the 2024 income cap was about $84,000, but each provider sets its own limits).
Update intake checklists and client materials to flag which clients can file for free through IRS-partnered software.
For low-income or senior clients, connect early with local VITA and TCE sites—capacity is tight and appointments fill quickly.
Be clear about state return coverage. Some “free” offers don’t include state filings, which can still cost money.
Next Steps
IRS will roll out a new outreach campaign for Free File before the 2025 filing season.
Treasury will conduct a national taxpayer survey and host the Free Filing Modernization Summit.
A supplemental report to Congress will follow, with new usage metrics and recommendations for the next Free File contract, which expires in 2029.
Takeaway
Treasury is pulling the IRS out of the software business. The next version of “free filing” will depend on marketing, data, and partnerships—not code.
Citation: Department of the Treasury, Report on the Replacement of Direct File, Report to Congress (Oct. 2, 2025; released Nov. 5, 2025), required by Section 70607 of Pub. L. 119-21 (One, Big, Beautiful Bill Act).