The controversial Internal Revenue Service (IRS) Direct File program, which was canceled in part due to high costs, actually cost the government $45 million less than expected, according to a federal watchdog.
The IRS had estimated that Direct File costs would total $61.2 million for fiscal year 2025, but they instead were $16.2 million as of May 2025, the Treasury Inspector General for Tax Administration (TIGTA) found in a March 19 report.
The expenditures needed to operate Direct File were “significantly less than estimated,” the report said, because the IRS overestimated the number of taxpayers who would use Direct File and the number of IRS personnel needed to help them. The IRS also did not use some needed engineering and design contracts because the program was told to halt development in March 2025.
The discrepancy is significant because costs were a key part of the partisan dispute over the program, a web-based service that guided taxpayers through a series of questions to prepare their federal tax returns step-by-step. Once taxpayers completed their federal returns, the Direct File system automatically guided them to state tools to complete their state tax filings.
Republicans had argued from the start of the Trump administration that the Biden-era program – which was initially aimed at low- and middle-income taxpayers in a dozen states – was wasteful and represented government overreach.
The IRS successfully piloted Direct File during the 2024 tax season, allowing more than 140,000 taxpayers in 12 states to file tax returns with the agency electronically. The IRS made the program permanent in May 2024.
In October 2024, the IRS announced that the Direct File tool would be available in 12 additional states for the 2025 tax season, making the free e-filing service available in a total of 24 states.
But the “Big Beautiful Bill” that President Donald Trump signed into law in July instructed the IRS to report to Congress on how it could replace Direct File. The IRS officially suspended Direct File last fall, over the objections of Democrats.
In its October 2025 report to Congress, described in the TIGTA report, the Treasury Department attributed the suspension to relatively “high costs,” low overall participation, and burdens compared to other free filing options.
The report, which assessed Direct File activity during the 2025 tax filing season, recommended that the IRS refocus efforts on modernizing, promoting, and strengthening existing free filing programs.
While the IRS had estimated that 32 million taxpayers would be eligible for Direct File in 2025, only 751,000 taxpayers registered with the program, TIGTA said. Direct File management attributed the lower-than-expected usage to confusion in media coverage about the system’s availability and a lack of outreach about it.
Yet the 2025 performance was still a 78% increase from 423,000 registered taxpayers during the 2024 Filing Season.
The TIGTA report did not give an overall assessment of how successful the Direct File program was.
But other reviews have been positive. The Government Accountability Office published a report in December touting the success of the program, saying that Direct File received top scores from 90% of taxpayers who used the tool.