IRS Direct File software: What happened to it & what should you do if you used this last year?

During the two tax years it operated, 2024 and 2025, approximately 425,000 taxpayers used the IRS Direct File program. This program has now been discontinued. If you used Direct File, you would need to find an alternative option for filing your future tax returns.

What Was IRS Direct File

Direct File was a government funded tax preparation program. The program was first available to residents in 12 states for 2023 tax returns. The following year it became more widely available. The software was available for users with basic tax returns, that included things like W-2 wage income, Social Security benefits, unemployment compensation, interest income, and the standard deduction. People could also claim common tax credits, such as the Earned Income Tax Credit and the Child Tax Credit.

Direct File did have restrictions that made many filers ineligible. For example, you couldn’t use it if you had business income, rental properties, investment gains, itemized deductions, or retirement distributions beyond basic Social Security. 

There were also, income limits depended on your filing status. For example, single filers were only eligible if they earned less than $200,000 or $168,600 if they had multiple W2s. Married filing jointly had a $250,000 combined limit with a similar multiple employer reduction. More on this can be found on the IRS website here.

What Happened to Direct File?

IRS Commissioner Billy Long announced the program was ending in July 2025, it would remain operational through October 15, 2025, for taxpayers with valid extensions. After which, it would be permanently closed.

Why was this decision made? The Direct File program proved to be expensive. In addition to the many millions of taxpayer dollars that were used to create the program. According to the IRS, (https://crsreports.congress.gov/product/pdf/IN/IN12270) the cost estimates for maintaining it would be roughly $13 per return. The IRS stated that this cost could drop to $9 per return if over 25 million returns were prepared using Direct File annually.

The issue with these economics was, for decades, free income tax software was already being provided through private organizations such as E-file.com and others. These organizations collectively allow for over 28 million taxpayers annually to prepare a tax return at no charge to them or the US government.  Since Direct File served as an alternative to this public-private partnership, if it was successful at replacing what is already being provided to taxpayers for free, it would end up costing the US government and taxpayers an excess of $252 million dollars annually. $252 million to replace the 28 million returns that were already being provided through public-private partnership for free. In essence, Direct File was a solution to a problem that did not exist and one that was very expensive at that.

Here’s What Happens Next

Taxpayers who used Direct File will still be able to access copies of their returns through the account they created at directfile.irs.gov they can also request a transcript from the IRS.

For future filings, these taxpayers will need to choose another filing method. They can attempt to complete their tax form by hand or by using the IRS fillable forms website (essentially a digital version of the 1040 form). Alternatively, they could switch to tax software like E-file.com. E-file.com supports all filing situations that Direct File supported, but it can also handle income from rental properties, investment gains, itemizing deductions, retirement distributions and more.

E-file.com calculates deductions and helps determine if you are better off taking the standard deduction or itemizing. Our software also searches for tax credits that you qualify for. Including education credits, dependent care credits, retirement savings credits, and energy efficiency credits that Direct File did not calculate.

Making the Switch is Simple

Gather your W-2s, 1099s, receipts, and a copy of the return you prepared with Direct File. Create a free account on E-file.com, our software will walk you through each section with clear questions. We will automatically save your progress so that you can come back anytime to complete your return.

Our system checks for errors and calculates your refund or balance due. You will have an opportunity to review your completed return before filing electronically. Filing electronically with the IRS and selecting to have your refund directly deposited to your bank helps you get your refund fast.

State returns are prepared alongside your federal return. This eliminates the separate state filing process that Direct File required.

Ready to file your taxes? Start your tax return today and experience our faster, easier, and more accurate tax filing software.