States that formed partnerships with the IRS to provide the agency's Direct File program are experiencing minimal demand for the program so far in 2025, according to Bloomberg Tax reports.
There have only been a few eligible taxpayers who have taken advantage of the option ahead of today's April 15 deadline to submit returns, based on data from many state tax departments. Roughly 140,000 individuals participated in 2024’s pilot.
The tax agency's platform, which was initially tested in 2024, became available to over 30 million taxpayers throughout 25 states for this tax filing year. Several of these states established integrated platforms providing federal- and state-filing services, while the others directed individuals to utilize standalone state-run tax preparation services after they have filed federal returns, Bloomberg Tax says.
The low participation rate is a reflection of many hindrances to a widespread adoption for the 2025 tax filing season, practitioners and officials noted, Bloomberg Tax reports. It is yet to be determined if 2025's demand will affect Direct File's existence going forward. Tax-prep firms, which could lose clients to Direct File, have opposed it.
According to Bloomberg Tax, skeptics can use this year’s suppressed numbers as a rationale to end Direct File, but it is not clear if the Trump administration wants to get rid of the free service that is popular with voters. Last March, the current administration sought a 30% reduction of the IRS team that is in charge of the program.
“There just doesn’t seem to be a valid reason to continue a program that has demonstrated it’s not going to be used by taxpayers,” noted David Ransom, counsel at the American Coalition for Taxpayer Rights, a group comprising tax-prep firms. There’s already a “wide range of other free offerings,” he added.
For example, in New York state, over three million residents were eligible to utilize the the program this year, but only 17,500 filers took advantage of the program through April 11, noted Darren Dopp, a spokesperson for New York’s Department of Taxation and Finance. The other states reported participation rates that are similar.
Despite these factors, state tax departments could still experience a surge in Direct File utilization at today's April 15 deadline and later on for filers who ask for an extension to October.
The slow utilization indicates the existence of many unique factors in this year’s tax filing season that might have discouraged individuals from using the new IRS program, tax policy analysts stated.
According to Bloomberg Tax, these reasons include worries about privacy in terms of the handling of taxpayer data given the Department of Government Efficiency’s attempts to access taxpayer data. This has led to lawsuits from attorneys general in 19 states. Additionally, undocumented workers might elect to not pay taxes after the IRS agreed to share taxpayer information with U.S. immigration. There is also the factor that many filers may not be aware the program exists.
Any changes to Direct File going forward will interfere not only with the ability to submit both federal returns and state tax forms for free, Bloomberg Tax reports.
Despite the fact that some taxpayers have been allowed to submit federal taxes for free via the IRS’s Free File program, they usually still had to pay to file their state returns. With Direct File, a wider array of taxpayers have been allowed to file both for free.
Many states had free filing tools prior to Direct File, letting some taxpayers submit their state returns, although those systems are getting more activity given that the IRS’s Direct File program will refer taxpayers to the state option that's available to them.