IRS kills Direct File after 296k users: tax prep lobby wins

The IRS launched Direct File in 2024 as a limited pilot. By the 2025 filing season it had served 296,000 taxpayers across 25 states, saving each about $160 in fees. Treasury initially planned to expand it to 30 million Americans. On March 21 2025 the Trump administration ordered the program shut. This April the IRS confirmed Direct File will not operate for 2026 returns, leaving zero users where nearly 300,000 had filed for free the year before .

Intuit and H&R Block spent roughly $103 million on federal lobbying between 2004 and 2024, according to Senate disclosures. In 2023 and 2024 alone Intuit poured almost $4 million into defeating Direct File. The Free File Alliance, an industry group whose members include both companies, argued the program was government overreach that would eliminate consumer choice. Fortune reports that these efforts helped convince the Trump transition team that Direct File duplicated existing private services .

With Direct File gone, filers must again rely on the existing Free File program run by commercial vendors. Warren’s office tested TurboTax’s “free” tier and found a sample taxpayer would owe $128 after repeated upsells. IRS data shows Americans spend an average of 13 hours and $240 to file; Direct File reduced that cost to near zero for basic returns. The program also auto-filled W-2 and 1099 data the IRS already had, cutting errors and maximizing refunds .

Senator Elizabeth Warren and Congressman Brad Sherman have introduced the Direct File Act with 160 Democratic co-sponsors. The bill would permanently authorize Direct File, bar Treasury from shutting it down, and appropriate $15 billion over ten years. Warren frames the cost as modest: one day of military spending would fund two decades of free filing. The measure faces long odds in a Republican-controlled Congress, but backers hope public outrage will pressure swing-state lawmakers .

This is the third decade Congress has tangled with tax prep giants. A 2002 deal capped Free File usage at 70 percent of taxpayers; today only 3 percent use it. Warren first tried to mandate IRS-run filing in 2016 and again in 2022. Each attempt died under industry pressure. The difference now: millions have actually used Direct File and liked it. Republicans counter that private services already provide free options and that a government system could discourage innovation .

Unless the Direct Act passes, 2026 returns must be filed through commercial software or paper. A handful of states including California and New York are exploring their own free portals, but most will not be ready this season. Intuit and H&R Block shares rose on news of the cancellation. Consumer advocates expect renewed lobbying battles when Congress takes up broader tax simplification later this year .