Do we need another tax app? As part of a pilot program in 2024, eligible taxpayers were able to file their federal tax return for free, directly with the IRS, using an app called Direct File.
Stop me if you've heard this one before: What if we had a free tax filing app that you could use on your phone?
That was a suggestion from Elon Musk and Vivek Ramaswamy, leaders of President-elect Donald Trump's "Department of Government Efficiency," according to the Washington Post. The Post reported that the pair have discussed trying to create a mobile app for Americans to file their taxes free with the IRS.
These conversations, which were described as "highly preliminary," sound promising -- making filing tax returns easy for Americans should, in theory, be more efficient for many taxpayers, resulting in more compliance. Compliance typically translates to revenue. The IRS currently collects approximately $4.7 trillion in gross revenues and generates about 96% of the funding supporting the federal government's operations.
In fact, it's such a good idea that it's already been done.
As part of a pilot program in 2024, eligible taxpayers were able to file their federal tax return for free, directly with the IRS, using an app called Direct File. The pilot was announced in October 2023 and closed after the filing season ended in April 2024. The IRS has called it a success, saying that several hundred thousand taxpayers across 12 states signed up for Direct File accounts, and 140,803 taxpayers filed their federal tax returns using the new service. Eligibility was limited to taxpayers with simple returns in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.
According to the IRS, taxpayers filed -- for free -- to obtain more than $90 million in refunds and saved an estimated $5.6 million in filing costs.
Direct File is the result of the Inflation Reduction Act. Congress tasked the IRS with delivering a report on, among other things, the cost of developing and running a free direct e-file tax return system, including costs to build and administer each release, with a focus on multi-lingual and mobile-friendly features and safeguards for taxpayer data. The IRS released the report to Congress in May 2023.
According to the report, the IRS studied how an IRS-run free direct e-file tax return system might work for several months. Most taxpayers surveyed by the agency reported interest in using an IRS-provided tool to prepare and file their taxes. At the time, the IRS indicated it hoped to make that a reality for some taxpayers for the 2024 tax filing season.
At the same time, the House GOP proposed an appropriations bill that would bar the IRS from using funding to develop or provide a free direct-file tax return system without the prior approval of the Committees on Appropriations of the House and the Senate, House Ways and Means Committee, and Senate Finance Committee. The House failed to pass a long-term appropriations bill, and the short-term funding bill did not address the direct-file tax program.
When the filing season opened in January 2024, the IRS announced the limited-scope pilot, which it claimed would allow the IRS to evaluate the costs, benefits, and operational challenges associated with providing the option to taxpayers.
The pilot was, the IRS says, a success. According to the IRS, Direct File users reported a high degree of satisfaction and quick answers to their filing questions. In a GSA Touchpoints survey of more than 11,000 Direct File users, 90% of respondents ranked their experience with Direct File as "Excellent" or "Above Average." Most survey respondents who filed taxes in the prior year reported having to pay to prepare their taxes last year. Among survey respondents, 47% of users paid to file their taxes last year, and 16% did not file last year at all.
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 their experience with Direct File increased their trust in the IRS.
(You can read what some taxpayers had to say to Forbes about their experiences here.)
As a result of the program, the Treasury Department declared that Direct File will be a permanent, free tax filing option.
In the fall, the IRS announced that the number of states offering Direct File would double in Filing Season 2025 to 24. In Filing Season 2025, Direct File will be available in Alaska, Arizona, California, Connecticut, Florida, Idaho, Kansas, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin, and Wyoming. That means 62% of Americans will live in states offering Direct File.
Taxpayer eligibility to participate in the pilot was limited to taxpayers with certain types of income, credits, and deductions -- taxpayers with relatively simple returns. For Filing Season 2025, Direct File will support additional income types and credits for individuals who meet other eligibility requirements, including the Credit for Other Dependents, Child and Dependent Care Credit, Premium Tax Credit, Retirement Savings Contributions Credit, as well as the deduction for Health Savings Accounts.
In the 2025 filing season, Direct File will offer a new chatbot to provide guidance on the eligibility checker. Live Chat will again be available in English and Spanish and will have enhanced authentication and verification features to allow customer service representatives to provide more information. Taxpayers can also request a callback, during which IRS customer service representatives can provide technical support and answer basic tax questions in English and Spanish.
Importantly, Direct File is also available as a mobile app. In fact, according to Amanda Renteria, who serves as Chief Executive Officer for Code for America, Direct File started as a mobile app. That's smart, explains Renteria, since building a product on mobile can make it easier to provide a more seamless, user-friendly experience.
The goal, she explains, was to make it easy to file on your phone, on your computer, or in person. "We believe people should have a lot of different options," she says.
Renteria notes that, initially, the biggest question was whether building the app was even possible. When that worked, she explains, the question became whether extending it to the state filing experience was possible. Making those things work, she says, proves that "government can do these things... and they can do it well."
Code for America is a civic tech nonprofit that works with community leaders and governments to build equitable, accessible digital tools and services. Founded in 2009, Code for America believes that government can work for and by the people in the new digital age.
In 2021 and 2022, Code for America helped build GetCTC.org, which made it easier for families to claim the expanded child tax credit (CTC). Over the course of 2021 and 2022, nearly 200,000 households claimed an estimated $685 million using GetCTC.
Most recently, Code for America worked with states to provide a FileYourStateTaxes program to help more state governments deliver simple, free, and integrated state tax filing for Direct File users.
Building the app wasn't the only challenge. Convincing taxpayers to take advantage of the app was another. More and more people see, Renteria says, the more people come around. They note, she says, that it is "so well received and well done."
There has been skepticism about the program -- and whether the government should be involved in your taxes -- since the beginning. But Renteria says, "Government is already involved" when it comes to your taxes -- it already has all of the info. That scares some people. The key is to make it a good experience, she explains.
That's where politics can come into play. Everyone wants to get credit, she explains, for making people's lives better.
Activity has going on behind the scenes for a while -- the Biden administration got the process going and worked out the kinks, and the IRS learned several lessons from its pilot program. Now, she says, there's a different energy focused on growing the program.
Whether the program will be expanded or replaced is not yet clear. Musk and Ramaswamy did not return requests for comment about their specific plans moving forward.
So, what happens if the new administration wants to jump in with their own program? That's not necessarily a bad thing, Renteria explains. If the Trump administration continues to build on that momentum and deliver a product to more taxpayers, it gives the administration a chance for an early win.