Ending Direct File could have downstream impacts for states, experts worry
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Without the free, government-backed tax filing service, state agencies could see their modernization and efficiency gains unraveled, those experts say.
A year after Direct File, a free federal tax filing system from the IRS, was made permanent, officials are reportedly planning to axe it. Ending the Direct File program could lead to lost time and cost efficiencies for state governments and tax filers, undoing critical progress toward modernizing and improving service delivery, experts say.
In 2024, 12 states participated in the Direct File pilot program before the IRS made the free tax filing service permanent for the 2025 tax season, when it expanded to 25 states. The program made it simpler and quicker for residents with simple returns to process their federal tax returns, helping people save on average $160 on tax filing services, according to the IRS.
Several states have also developed free, state-level tax filing services alongside Direct File, known as the FileYourStateTaxes program. In 2024, FileYourStateTaxes was available in Arizona and New York, and 88% of users completed their returns within 15 minutes. This year, four other states launched the program, with some further expanding eligibility to retirees.
Despite the federal and state programs’ success, Republican lawmakers have repeatedly criticized the service and called for its end, which appears to be on the horizon. Two sources familiar with the situation said that IRS staff were directed to stop working on further Direct File developments for 2026, AP reported last week.
“This year, it felt like we knew it would work, and we were just making it better,” said Amanda Renteria, CEO of the civic tech nonprofit organization Code for America. The Direct File and FileYourStateTaxes systems, for instance, prepopulates people’s tax data into their return forms to reduce the time required for manual data entry and cuts the risk of errors, which can be costly for governments to correct.
Doing away with the government-backed programs could disproportionately impact lower-income families, as they are particularly dependent on timely and accurate tax returns and tax credits for financial stability, said Courtney O'Reilly, associate program director of the tax benefits team at Code for America.
The tax services also help reduce the time burden for people to file their taxes, she added. In 2024 and 2025, for instance, more than 95% of people said they were satisfied or very satisfied with the tool, according to user surveys.
“We are also seeing that 94% [of respondents] prefer to use Direct File and FileYourStateTaxes over other products,” O'Reilly said.
Cutting a “lifeline” service like Direct File will likely further erode the public’s trust in government’s ability to meet the public’s needs, Renteria said. Lawmakers risk missing the opportunity to "really link a next generation to trust in government again,” she said.
There is also the concern that the federal government’s actions could unravel states’ modernization progress as they grapple with budget and capacity reductions, she said. With fewer staff and financial resources dedicated to programs like Direct File, for instance, tax agencies could return to complex, paper-based systems, leading to backlogs and an influx of resident calls for staff to field.
Maryland Comptroller Brooke E. Lierman expressed concern over the program’s outcome in a statement posted last week to X, formerly known as Twitter, urging the Trump administration to save the program.
“Direct File promised and delivered on modernizing tax administration and reducing red tape, making the tax filing process more accessible and less intimidating for filers,” she said. “ When asked how we could improve upon Direct File, one Maryland taxpayer shared that, in their opinion, ‘you cannot improve on perfection.’”