IRS Shuts Down Direct File Tax Service

The Internal Revenue Service has discontinued a widely used service that allowed taxpayers to file their taxes directly without cost. This initiative, known as Direct File, was launched by the U.S. Treasury and the IRS in early 2024, aiming to help people file taxes independently and save money.

While the IRS hasn’t formally announced the closure of this tool, it is currently unavailable online. Taxpayers attempting to access Direct File now receive a message indicating that “Direct File is closed. More information will be available at a later date.”

The Direct File tool was made accessible to 25 states, including Massachusetts. In October, the IRS notified partner states through email that the tool would not be available for the upcoming filing season.

Alternatives to Direct File

The decision to discontinue the program appears to have been in the works for a while. The U.S. Treasury Department pointed out that participation in the program was low and operational costs were high. Existing options like Free File, an established partnership with private tax prep companies, weren’t adequately promoted or optimized.

As a result, the Treasury announced that the IRS would put a hold on the Direct File service. The report suggests the IRS should refocus efforts on enhancing existing Free File programs while also engaging stakeholders to modernize and promote these options more effectively.

Free File allows taxpayers to prepare and file federal income tax returns via online guided tax preparation software, but it works differently than Direct File. With Direct File, taxpayers submitted their returns directly to the IRS, while Free File redirects users to third-party tax service websites for information entry.

A potential downside of Free File, compared to Direct File, is that many users express feelings of being “pushed out” by companies that seem to offer free services. Investigative reports have indicated that some businesses might even discourage customers from using government-supported free options, coaxing them into paid services instead.

In 2022, the Federal Trade Commission took action against Intuit, the parent company of Turbo Tax, over misleading advertising and charges for services advertised as “free.” Intuit had previously been part of the Free Filing Alliance for 20 years before stepping away from the program in 2021.