IRS Direct File to open a week after Trump’s inauguration

The IRS Direct File tool is scheduled to open to taxpayers across 25 states at the start of the coming tax season on Jan. 27, a week after President-elect Donald Trump’s inauguration.

This year, the free IRS tool to file directly with the government online will feature the option for taxpayers to import data the tax agency already has about them from their IRS account into the tool — things like their biographical information, identity protection pin and W-2 form. 

Still, the long-term future of Direct File is murky.

The IRS piloted the tool in 12 states last year after decades of relying on private tax prep companies to offer most Americans free options to file their taxes online. That program, called Free File, is vastly underused, although the IRS says Direct File is a supplement to Free File, not a replacement.

In terms of what happens next, Trump has announced that he intends to nominate a former Republican congressman, Billy Long, to lead the tax agency — suggesting that he’d oust current IRS Commissioner Danny Werfel before his term’s expiration date in 2027. 

Some Republicans have also been asking Trump to kill the free online service outright, calling it “government overreach.” The Trump transition did not immediately respond to a request for comment on their plans for the tool. 

Asked how confident he was in Direct File staying online through the full tax season, Werfel told reporters on Friday that, “as we move forward in the future and we want to evaluate any new and emerging changes, we will evaluate those at that time.”

“This plan that we have, we’ve been working on closely with our current leadership at the Treasury Department, who have required, in this case, the Direct File tool to be issued, and that is our current plan,” he said. 

For now, the tool is set to also include a new chatbot option to help people check their eligibility, which is limited to certain tax situations in addition to certain states. In the states where it is offered that have state income taxes, Direct File helps people file their federal taxes before directing them to a state-side tool to finish their filing. 

In terms of the new prefill option, taxpayers that choose to import information will still have to fill out parts of their W-2 form manually. The IRS is calling the new option the “first step” of data import, which it said was the “number one taxpayer-requested feature.”

If the tool stays around, it appears that the IRS is also intending to further expand this data import feature. A Direct File demo shown to reporters said that the IRS set a “goal of reimagining the Direct File experience around data import by 2026.”

The IRS is also touting other digital improvements debuting this tax season, including upgrades to the IRS online tool Where’s My Refund. The IRS is also offering new voicebot services in English and Spanish for people calling the IRS for refund information and has added new features to individual online IRS accounts.

Werfel warned that additional progress is dependent on continued funding for the tax agency. 

Democrats put about $80 billion into the tax agency as part of the Inflation Reduction Act in 2022, but that’s since been cut down to about $60 billion. Another $20 billion is currently frozen, under the continuing resolution, and IRS funding remains a Republican target. 

“Our ability to continue making progress … can only happen if the IRS receives a consistent, reliable funding stream,” said Werfel, noting that the tax agency won’t be able to handle its workload without adequate funding.

Also at play: The Government Accountability Office recently warned that delays in the recruitment of customer support representatives for Direct File could leave the IRS unprepared for the coming tax season, although Werfel told reporters that the tax agency is ready. 

Erin Collins, the National Taxpayer Advocate, wrote in a recent report to Congress that “the IRS has eliminated the mountain of paper returns and correspondence that piled up during the pandemic” and “made major strides toward improving its taxpayer services and information technology (IT) systems.”

She urged lawmakers to “not inadvertently throw the baby out with the bathwater” if they claw back funding from the IRA, noting that, unlike enforcement money, funding for taxpayer services and tech have received stronger bipartisan support. As she has previously said, Collins also urged lawmakers to put more money into those two efforts.

“If we don’t have the right staffing levels, the performance will backslide, and we will see, inevitably, slower processing, delays and potential backlogs,” said Werfel. “We will also lose the funds to do the technology upgrades that you saw today.”

“The funds that we seek is not a partisan issue from our vantage point,” he told reporters. “It really is about serving taxpayers and modernizing so that we can meet taxpayers where they are and help them with their filing obligations.”