IR-2024-122, April 26, 2024 WASHINGTON — The Internal Revenue Service announced the closure of the Direct File pilot with several hundred thousand taxpayers across 12 states signing up for Direct File accounts, and 140,803 taxpayers filing their federal tax returns using the new service. By design, the Direct File Pilot started out small, and in mid-March the IRS incrementally ramped up availability of the option. During the final days and weeks of the filing season, there was steadily increasing interest from taxpayers in pilot states using the new tool. By the final week of the filing season, Direct File processed more than 5,000 accepted returns each day, bringing the total number of returns filed to more than 140,000. Overall, for the pilot, leading states with accepted returns included California (33,328), Texas (29,099), Florida (20,840), New York (14,144) and Washington (13,954). Across the 12 pilot states, taxpayers using Direct File claimed more than $90 million in tax refunds and reported $35 million in tax balances due. The IRS saw strong interest in the Direct File option from taxpayers throughout the country. Millions of people – including many from outside of Direct File’s 12 pilot states – visited the Direct File website to learn more about the new system. Over the course of the pilot, more than 3.3 million taxpayers started the eligibility checker, 423,450 taxpayers logged into Direct File and 140,803 taxpayers submitted accepted returns. In cases where a user’s tax situation was out of scope of the pilot, they were directed to other options to complete their tax returns, including the separate Free File program that provides free software from the private sector. Overall, usage exceeded IRS expectations for the limited pilot and far exceeded what was necessary to provide sufficient data for the agency to evaluate. “From the very beginning of the Direct File pilot, we wanted to test new ways to give taxpayers an easy, accurate and free way to file their taxes online directly with the IRS,” said IRS Commissioner Danny Werfel. “We saw a strong response from the pilot, and Direct File’s users generally found it fast and easy to use. This is an important part of our effort to meet taxpayers where they are, give them options to interact with the IRS in ways that work for them and help them meet their tax obligations as easily and quickly as possible. We will be reviewing the results of the pilot and gathering feedback to help us determine our future course involving Direct File. We anticipate making an announcement about future plans later this spring.” The Direct File pilot was designed to test the feasibility of building a system to allow taxpayers to file their federal income tax returns directly with the IRS for free. As part of this, the IRS needed to understand how Direct File would complement existing tax filing options, strengthen the tax filing ecosystem and fulfill transformation objectives from the Inflation Reduction Act reflected in the IRS’s Strategic Operating Plan. The agency’s approach to the Direct File pilot revolved around three themes: Get it right from the start – A goal of Direct File was to help every taxpayer file an accurate return and get all of the tax benefits to which they are entitled. Taxes are the product – Direct File was designed to improve the tax filing experience. One option among many – While Direct File provided an additional free filing option, the IRS recognizes how taxpayers file their taxes is a personal choice. The Direct File pilot offered customer support via a live chat feature, where users communicated with IRS employees in both English and Spanish. The innovative live chat feature allowed customer support to be integrated directly into the product and didn’t require taxpayers to leave Direct File to get assistance through another channel, such as the phone. Direct File customer support agents worked alongside the product team to ensure a joined-up taxpayer experience. Lessons learned and technology developed by Direct File are being shared across the IRS. User feedback A General Services Administration Touchpoints survey of more than 11,000 Direct File users found that 90% of respondents ranked their experience with Direct File as “Excellent” or “Above Average.” When asked what they particularly liked, respondents most commonly cited Direct File’s ease of use, trustworthiness and that it was free. Additionally, 86% of respondents said that their experience with Direct File increased their trust in the IRS, and 90% of survey respondents who used customer support responded that their experience was “Excellent” or “Above Average.” Additionally, user feedback received throughout the pilot informed product updates and enhancements. “Direct File provided important lessons for us,” Werfel said. “A team of experts from across government worked together – alongside private sector partners with critical expertise – to build and test Direct File. This team designed and built Direct File from the beginning with taxpayers’ help, and we worked with taxpayers to refine the system throughout the pilot. We will consult a wide variety of stakeholders to understand how lessons from Direct File can help us improve the entire tax system as well as assess next steps.” “The IRS was also pleased that we saw increases in use for other free options for taxpayers this tax season, including Free File and returns prepared at our VITA and TCE sites,” Werfel added. Pilot costs Through the end of the pilot, the total amount spent by IRS was $24.6 million, including the Report to Congress. Direct File’s operational costs – including customer service, cloud computing and user authentication – were just $2.4 million. To build and run the pilot, the IRS also engaged the U.S. Digital Service (USDS). The IRS’s agreement with the U.S. Digital Service does not involve costs to IRS. Pilot for filing season 2024 The IRS launched the Direct File pilot for the 2024 filing season. The Inflation Reduction Act mandated that the IRS study interest in and feasibility of creating a direct e-filing tool taxpayers could use to prepare and file their federal income tax return. The IRS commissioned an independent study, which indicated broad interest in such a system, which the IRS detailed in a Direct File Report to Congress in May 2023. Shortly after that report, as directed by the Treasury Department, the IRS assembled a team of tax experts, technologists, engineers and strategists from across government to build the Direct File system. The IRS worked closely with the U.S. Digital Service and the General Services Administration’s technology office 18F to build and test Direct File. Initial testing began in early February 2024 with a handful of federal and state government employees, followed by short open availability windows for more taxpayers to start their returns. After a round of final testing in early March, Direct File opened to all eligible taxpayers in pilot states. Starting small to get it right The IRS purposefully designed the pilot to follow best practices for launching a new technology platform – start small, make sure it works then build from there. The pilot was purposefully limited to cover relatively straightforward tax situations such as W-2 wage income; the Earned Income Tax Credit, Child Tax Credit and the Credit for Other Dependents; the standard deduction and deductions for educator expenses and student loan interest. Taxpayers had to live in the same state for the entire tax year 2023 to be eligible to use Direct File. The 12 pilot states included Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State and Wyoming. After completing their federal returns, taxpayers in states with state-income tax – Arizona, California, Massachusetts and New York – were guided to a state-sponsored tool to complete their state filing. What comes next Since the pilot began, the IRS has been collecting and analyzing data, which we will continue analyzing in the coming weeks. In the coming days, the agency plans to release a report about the pilot’s scope, technology and taxpayer experience, customer support, state integration and the costs and benefits. The report examines both the strengths of the pilot and areas that could be improved if Direct File goes forward. No decision has been made about the future of Direct File at this time. Over the next several weeks, the IRS will meet with a wide variety of partners and stakeholders to learn more about how taxpayers interacted with Direct File and what they expect from a direct e-filing system, then carefully review data from the pilot and feedback from those discussions. Based on that data and feedback, the IRS expects to announce a decision about the future of Direct File later this spring. “We will consult a wide variety of stakeholders to understand how lessons from Direct File can help us improve the entire tax system as well as assess next steps,” Werfel said.
