Direct File: Is The New IRS Software Worth The Hype?

U.S. taxpayers have been complaining for generations about how onerous the tax-filing process has become. But the companies that make their money by preparing taxes each year have been fighting hard against serious reform efforts.

Ahead of this April 15, however, there was some optimism that things might be starting to change. The IRS announced a new (free!) tax-filing software called Direct File … but this year it’s only available to a fraction of Americans.

What it’s all about

The Direct File software debuted last week, but only a small percentage of the taxpayers in the dozen states where the pilot program will be offered this year. According to the IRS, it will “continue to open for new taxpayers in pilot states for short availability windows” over the course of the next several weeks.

Not only will millions of Americans not even have the opportunity to try out the software this year, its capabilities are limited to those with relatively simple tax situations. Freelancers, business owners, and others in special situations won’t be able to use it.

A Treasury Department estimate suggests just 1 in 3 taxpayers in the states where the pilot program is being offered will be eligible to participate.

A (painfully) slow start

Vox writer Dylan Matthews was able to check out the program first-hand even though his tax situation would preclude him from using it. And his takeaway was that Direct File has some limitations compared to what the private sector can offer, although there are signs that the program might have a bright future.

In light of the glitchy rollout of HealthCare.gov more than a decade ago, Matthews concluded: “The idea this time was to build it gradually so that each limited form of the software works before moving forward.”

Chris Agee February 27th, 2024

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