Trump Treasury shuts down IRS Direct File free tax system

The Trump administration announced in Apr. 2025 it would end the IRS Direct File program, a free tax filing service launched under President Biden in 2024. IRS Commissioner Bill Long announced the decision. Treasury Secretary Scott Bessent, acting as IRS commissioner after the resignation of Long's predecessor, said Direct File was unnecessary and that "the private sector can do a better job." The decision was finalized when Trump signed a budget reconciliation bill Jul. 4, 2025, mandating termination of the program. The law required Treasury to shut down Direct File "as soon as practicable" but no later than 30 days after enactment.

Direct File was created under the Inflation Reduction Act, passed in Aug. 2022, which provided $80 billion in new IRS funding over 10 years. The law directed the IRS to improve customer service and ensure taxpayers claim all benefits and deductions for which they're eligible. Direct File launched as a pilot in 2024 for simple returns in 12 states. In 2025, it expanded to all 50 states. About 300,000 taxpayers used Direct File in 2025, filing straightforward returns directly with the IRS for free, bypassing commercial tax prep companies. The program handled W-2 income, standard deductions, and common credits like the Earned Income Tax Credit and Child Tax Credit.

Customer satisfaction with Direct File was 94%, with users describing their experience as "excellent" or "above average," according to IRS surveys. Direct File worked for taxpayers with W-2 income, standard deductions, and common credits like the Earned Income Tax Credit or Child Tax Credit. It didn't support complex returns with itemized deductions, self-employment income, or capital gains. The IRS estimated Direct File saved users an average of $160 in tax prep fees compared to commercial software or paid preparers. For low-income filers, $160 in savings represents a significant portion of their tax refunds. Users praised Direct File's simplicity and the lack of upselling to paid products.

The Jul. 4, 2025, budget reconciliation bill required the Treasury Department to terminate Direct File "as soon as practicable," but no later than 30 days after enactment. The law included funding to study a replacement for the IRS-built website, though no specific alternative was mandated. As of Nov. 2025, Direct File was shut down. Taxpayers who used Direct File in 2025 will need to use commercial tax prep software, IRS Free File (a partnership with private companies), or hire paid preparers for 2026 returns. The IRS hasn't announced a replacement or timeline for developing an alternative free filing system.

Congressional Republicans and tax prep industry lobbyists opposed Direct File. Rep. Adrian Smith (R-NE), chair of the House Ways and Means Oversight Subcommittee, called Direct File "government overreach" and said the IRS shouldn't compete with private companies. Intuit (maker of TurboTax) and H&R Block lobbied against Direct File, warning it would "crowd out" private-sector innovation. Industry groups spent millions on lobbying and campaign contributions to lawmakers who supported ending Direct File. Between 2020 and 2025, Intuit spent over $13 million on federal lobbying. H&R Block spent over $5 million.

Critics, including Americans for Tax Fairness and the Institute on Taxation and Economic Policy (ITEP), called the decision "a gift to big corporations." They argued Direct File empowered taxpayers and reduced reliance on expensive commercial software. ITEP noted that Intuit and H&R Block earn billions in revenue from tax prep services, much of it from low- and moderate-income filers who qualify for free versions but are often steered to paid products. ProPublica investigations found companies hid Free File pages from search engines and used confusing marketing to steer users to paid products. Direct File advocates argued a government-run program avoided these conflicts of interest.

IRS Free File, a separate program, remains available but has significant limitations. Free File is a partnership between the IRS and private tax prep companies. Companies offer free versions for taxpayers earning below income thresholds (typically $79,000 or less), but users report being pushed toward paid upgrades. ProPublica investigations found companies hid Free File pages from search engines and used confusing marketing to steer users to paid products. Direct File advocates argued a government-run program avoided these conflicts of interest. Without Direct File, low-income taxpayers have fewer truly free options. Tax prep companies earn billions from fees that Direct File would've eliminated.