Section I: The Direct File Pilot

The IRS has a significant impact on the lives of the American people, and is responsible for

collecting approximately 97% of the revenue to support the operations of the U.S.

government. ³ The amount of time the American people spend recordkeeping, gathering tax

materials, filling out their taxes, and other tax-related activities makes up approximately 63%

of all Federal paperwork burden annually. ⁴ On average, including all associated forms and

schedules for non-business income, individual taxpayers spend approximately 9 hours and

$150 preparing their taxes each year. ⁵

Taxpayer expectations, opinions, and perceptions of the IRS are shaped by these experiences

of filing tax returns. Tax returns can be prepared and submitted in many ways, including via

paper through the mail; electronically through IRS’s Free File or Free File Fillable Forms;

through a free tax return preparation site, such as IRS’s Volunteer Income Tax Assistance

(VITA) and the Tax Counseling for the Elderly (TCE) programs; through commercial do-it yourself software, both paid and free; and with support from professional tax preparers.

As the IRS considered a potential Direct File service, it needed to understand how Direct File

would complement these existing options, strengthen the tax filing ecosystem, and fulfill the

transformation objectives of IRS’s Inflation Reduction Act Strategic Operating Plan. The

agency’s vision for a potential Direct File option revolves around three themes:

• Get it right from the start. Direct File represents a commitment to helping every

taxpayer file an accurate return and get the tax benefits to which they are entitled.

Taxpayers shouldn't have to worry about having made a mistake or miss out on a

valuable credit. Direct File is one potential mechanism for increasing the fairness of

our tax system.

• Taxes are the product. Direct File seeks to improve the experience of taxes

themselves. It is an opportunity to increase tax fluency via transparent, clear

explanations while reducing the burden of tax filing. In concert with rejuvenated

3 IRS. “Final Monthly Treasury Statement for Fiscal Year 2023 through September 30, 2023, and other Periods.” Page 38. htps://fscaldata.treasury.gov/staƟc-data/published-reports/mts/MonthlyTreasuryStatement_202309.pdf

4 IRS. Research, Applied AnalyƟcs & StaƟsƟcs. Tax Compliance Burden Report 2023. Page 1. htps://www.irs.gov/pub/irs- pdf/p5743.pdf

5 IRS. Tax Year 2023 InstrucƟons for forms 1040 (and 1040-SR). Page 108. htps://www.irs.gov/pub/irs- pdf/i1040gi.pdf#page=108. These cost esƟmates do not consider post-filing interacƟons with the IRS.

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customer support, increased outreach and assistance options, and a focus on

simplifying notices and IRS.gov content, the IRS has more levers than ever to make

taxes accessible to everyone.

• One option among many. While Direct File ensures the availability of an always free

filing option, it is essential that Americans have the choice to file however suits them,

even if that’s on paper. Lessons learned and technology developed by Direct File can

be shared across the IRS and the tax filing ecosystem to make everyone’s experience

of taxes better, no matter how they file.

There are many potential taxpayer benefits that could eventually be realized with a Direct File

capability. They include:

• Accessing past year and information return data that the IRS already has, such as W 2s or 1099s, to reduce burden and catch issues before you file ⁶

• Assisting you with updating your withholding to avoid unexpected tax bills

• Helping you stay on top of estimated tax payments if you’re self-employed

• Connecting you with other government programs for which you might be eligible,

including SNAP, TANF, Medicaid/CHIP, WIC, CCDF, LIHEAP, and more

• Making it easy to enroll in Social Security and Medicare as you approach retirement

age

However, before these opportunities can be considered, the IRS would need to build new

processes to operate, maintain, evaluate, and improve a complex technology product. Modern

product development best practices recommend starting small and growing over time — an

approach that was foundational to the Direct File pilot. The product was built with a limited

scope for the pilot, enabling the IRS to assess the viability of its approach while also ensuring

that the investment provided immediate value to taxpayers. And it was rolled out incrementally

to taxpayers over the course of the filing season to allow the IRS to continue to test Direct File

prior to making it available to the general public.

The supported tax situations are the single biggest determinant of the complexity of the

product. Direct File did not impose an income limit or other arbitrary restriction on eligibility;

instead, it followed the precedent of the VITA program. Although VITA aims to assist taxpayers

who “generally make $64,000 or less” (among other categories), it does so by identifying the

tax provisions most relevant to this audience, and marking other, less relevant provisions as

out of scope.

6 IRS. InflaƟon ReducƟon Act Strategic OperaƟng Plan. Page 30. htps://www.irs.gov/pub/irs-pdf/p3744.pdf

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Direct File sought to design a tax scope that would accommodate the needs of a significant

portion of low- to middle-income working individuals, couples, and families with wage income.

Scope items were considered based on four criteria:

1. Prevalence: How many additional taxpayers would be eligible?

2. Complexity: What level of effort would be required to implement it?

3. Ease of explanation: Would it make it easier for taxpayers to self-identify as in- or

out-of-scope?

4. Customer support: Would it impact the demand for customer support or implicate

additional training needs?

Direct File’s pilot scope is depicted in Table 1.

Table 1. Direct File tax scope

• Form 1040 and 1040-SR - Wages - Child Tax Credit and Credit

• Must be a U.S. resident - Interest of $1,500 or less for Other Dependents

• Any filing status - Unemployment compensation - Earned Income Tax Credit

• Dependents (claiming by - Social Security and Tier I - Claiming credits after non-custodial parents not Railroad Retirement Benefits ⁷ disallowance (Form 8862) supported) - Standard deduction

• Language and accessibility - Student loan interest preferences (Schedule LEP, deduction Form 9000) - Educator expenses deduction

Eligibility was further restricted by the requirement to be a full-year resident of one of twelve

pilot states. These included eight states without state income taxes and an additional four

states that agreed to partner with the IRS on the Direct File pilot. ⁸ For more information on this

scope limit, see Section IV: State Taxes.

Prior to the start of the pilot, the Research, Applied Analytics and Statistics Division (RAAS)

estimated that 19 million taxpayers would be eligible to participate in the Direct File pilot given

these scope limits.

7 Direct File did not include Tier I Railroad ReƟrement Benefits in public materials, aŌer the team idenƟfied that this was a potenƟal source of confusion due to overlap with Tier II benefits.

8 An addiƟonal non-income tax state, Alaska, was excluded from pilot eligibility because dividends from the Alaska Permanent Fund, received by most Alaska residents, were not supported in Direct File.

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As described in the Report to Congress, by May 2023, the IRS had built a functioning internal

prototype of Direct File as part of its exploratory work to understand taxpayer interest. The

version of Direct File that pilot participants used to file their taxes is a direct descendant of this

prototype.

Prototypes are excellent for trying out ideas and conducting user research with taxpayers. But

while the Report to Congress prototype could successfully e-file a simple tax return, it

represents less than 10% of the overall effort that went into building Direct File. In June 2023,

the IRS began to scale up its delivery effort to develop the Direct File pilot, a process that

continued throughout calendar year 2023.

To produce the prototype, the IRS was supported by a small team from the U.S. Digital

Service (USDS). To get Direct File production-ready, including standing up the customer

support function, the IRS expanded its partnership with USDS, hired four new software

engineers, executed an interagency agreement with the General Services Administration

(GSA)’s 18F, and contracted with two Small Business Administration (SBA)-certified 8(a) small

businesses that specialize in modern software development and design practices. The U.S.

Department of Treasury contributed one part-time tax law attorney-advisor to the team.

These resources were combined on blended teams, with federal employees and contractors

working side-by-side. Each team included multiple disciplines, with no separation between

design and engineering, and they were empowered to iteratively find the best solution to high level requirements, to develop new features in response to feedback from taxpayers, and to

prioritize a backlog of potential work. Team members from all organizations served in

leadership roles. This blended-teams approach was foundational to Direct File as the IRS

wanted to both capitalize on expertise across the government and private sector and model

new ways of working collaboratively to develop and deliver technology products.

Direct File is deployed on IRS’s Integrated Enterprise Portal (IEP) cloud infrastructure and

leveraged services and expertise from across IRS Information Technology. IRS’s Office of

Chief Counsel reviewed all tax-related language and logic for accuracy, and Taxpayer Service

Division (TS) Submission Processing supported the integration of Direct File and Modernized

e-File (MeF). Direct File joined the Security Summit public-private partnership and fully

implemented the Summit’s Trusted Customer requirements in order leverage lessons learned

over more than two decades of e-filing.

To deliver a multilingual product, Direct File partnered with TS Media and Publications and

Communications and Liaison (C&L), leveraging those offices’ Spanish language translation

capability and expertise. However, given the complexity of Direct File, which often requires the

software to dynamically adapt language to a particular tax situation, it was also necessary to

have Spanish language expertise embedded within the team to perfect translations and

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implement them in the product. This embedded support was critical to delivery of a fully featured Spanish experience and would need to be replicated with additional language specific resourcing should Direct File incorporate additional languages in the future,

highlighting a challenge of developing and maintaining a multi-lingual product.

The Direct File team employed a human-centered approach to the design of Direct File.

Industry-standard methods included unstructured one-on-one interviews, observations, and

usability testing, and involved engaging directly with taxpayers with a range of attitudes,

aptitudes, abilities, and access needs. Research was done in both English and Spanish and

included taxpayers who use assistive technology. Research findings informed design

decisions, identified areas for improvement, and assessed the ease with which taxpayers

could answer questions accurately and confidently. In addition to traditional participant

recruiting methods, non-profit community and accessibility organizations connected the

research team with taxpayers across the country.

Research continued through the pilot, with findings informing continued iteration of the

product. Some studies focused on improving the usability of sections that generated demand

for customer support. Other studies aimed to learn first-hand what Direct File users liked or

would like to see improved. While the primary goal of these studies was to iterate upon and

improve Direct File during the pilot, this research also informs Section II: Technology and

Taxpayer Experience. All told, 33 studies were conducted with the participation of 195

taxpayers.

Direct File offered customer support via live chat with IRS employees in both English and

Spanish. Customer support representatives (CSRs), managers, and leads from TS Accounts

Management (AM) volunteered to support the Direct File pilot and split time between Direct

File and AM based on demand from Direct File. Approximately 400 IRS employees were

trained to use live chat technology and answer Direct File questions, although far fewer were

scheduled to support Direct File on any given day.

Customer support was integrated within the operations of the service itself. A “one team”

approach promoted a holistic experience for taxpayers by ensuring that the customer support

and product teams were in close communication, with daily (or even more frequent) feedback

loops improving the quality of both the product’s user experience and of customer support’s

answers. Customer support operated with a test, learn, and iterate approach, and like the

product team, used agile and human-centered practices to deliver customer support to

taxpayers. For more on the approach, see Section III: Customer Support.

Direct File was rolled out in phases, with the goal of starting small and expanding its userbase

over time. Direct File is just one filing option among many, and maximizing usage of Direct File

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was not the goal of the pilot and not necessary for the IRS to learn from the pilot and collect

data to inform future decisions. Instead, the pilot was designed to limit risk, including risk to

taxpayers, by only expanding Direct File as much as was necessary to answer key questions.

While the IRS hoped that Direct File would be ready to make available to all eligible taxpayers

before the end of filing season 2024, this was not a foregone conclusion and was conditioned

on meeting certain “gating criteria” that provided the IRS with a benchmark to evaluate service

readiness against prior assumptions.

While the pilot was designed to safely roll out and evaluate Direct File, the pilot itself was also

an experiment, based on assumptions that could be validated or invalidated based on what we

learned. Like many Direct File documents, presentations on pilot strategy began with the

unofficial team motto, “We’re trying something new, this will change as we learn.”

The original pilot design contained five phases, which are outlined in Table 2.

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Table 2. Direct File pilot phases

The pilot began with Phase A, extending invitations to approximately 1,850 IRS employees

and employees of the state revenue agencies that had developed integrated state tools. Of the

employees who volunteered to try out Direct File, six further agreed to be among the “First

Filers.” These First Filers allowed members of the Direct File team to observe the preparation

of their tax return, while other members of the team monitored systems for potential issues.

Additional care was exercised by starting with just employees from non-income tax states,

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enabling the team to ensure the reliability of federal return functionality before taxpayers

began transferring those returns to integrated state tools.

The original pilot design then called for extending invitations to members of the public

recruited by community partner organizations. After extensive engagement with these

organizations on the logistics of this Phase B, the IRS and its partners collectively agreed in

advance of filing season that the complexity and effort required was not realistic, and partners

instead encouraged interested taxpayers to try out Direct File after public availability was

announced in Phase D.

However, before Phase B was removed, the completion of the Spanish language version of

Direct File was identified as a Phase A gating criterion to ensure that invitations could be

extended via community partners serving Spanish-speaking communities. Implementation of

translations was delayed, and with the removal of Phase B, IRS decided to move the release

of a Spanish language version to the start of Phase D.

The next phase, Phase C, was intended to address concerns from other past government IT

launches in which systems were overwhelmed by the demands of instantly scaling from very

few users to hundreds of thousands, or even millions. While Direct File and the IRS IT team

conducted performance testing simulating these demands, testing was constrained because

these tests could not be conducted while integrated with the MeF system, resulting in some

unknowns associated with the system’s ability to scale.

To address these concerns, Phase C prescribed opening Direct File to sign-ups from new

users during short, unannounced windows. However, the underlying concerns about rapid

scaling proved unsubstantiated, and taxpayers and community groups expressed confusion

about the unpredictability of the windows.

As a result, on March 8, the IRS pivoted toward announcing 24/7 availability of Direct File

during Phase C, what the team would internally term “Phase C+.” Guardrails were

implemented where should the number of users grow by more than an order of magnitude in a

single day, Direct File would automatically close until the following day. These guardrails

increased over time but were never triggered, and Direct File remained available through the

end of filing season 2024. Direct File closed to new submissions at midnight on April 15 (April

17 for Maine and Massachusetts residents) and closed to resubmissions of rejected returns at

midnight on April 20.

Over the course of the pilot, more than 3.3 million taxpayers started the Direct File Eligibility

Checker, 423,450 taxpayers logged in to Direct File, and 140,803 taxpayers submitted

accepted returns. This usage was in line with IRS expectations for the pilot, which specified a

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goal of 100,000 accepted returns, and far exceeded what was necessary to provide sufficient

data for the IRS to evaluate.

Figure 2 shows the progress of taxpayers through Direct File. As only 12% of taxpayers were

eligible to participate in the pilot, these conversion rates were expected; indeed, at multiple

points along the journey, Direct File guides taxpayers for whom it might not be the right choice

to other filing options, with a focus on other free filing options.

Figure 2. Direct File conversion funnel

This data alone does not suggest the total extent of taxpayer interest in Direct File. Direct File

was unavailable to the general public early in filing season when many taxpayers file early to

receive much needed tax refunds. The 2024 Figure 3. Direct File’s growth Taxpayer Experience Survey (TES) will again outpaced filing season trends. include questions about Direct File, potentially

revealing more about taxpayers’ updated level of

interest with the benefit of the pilot and

associated media coverage.

What the data does show is that whatever the

theoretical maximum level of interest is, it has

not yet been reached. Each week following the

announcement of Direct File’s availability,

growth in Direct File usage far outpaced overall

filing season trends, reflecting significant upside

potential, as shown in Figure 3. The data

demonstrates taxpayer demand for a Direct File

option, and further study can quantify the extent

of that demand.

72% of Direct File users requested refunds, totaling $90,417,855. 24% had a balance due,

totaling $35,268,154, with the remainder of taxpayers having a $0 balance.

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Direct File was available in 12 states across the country. Figure 4 shows the number of

accepted returns from each state, according to the address provided on Form 1040. ⁹

Figure 4. Direct File returns by state

After submitting or resubmitting a Direct File return, a taxpayer could optionally respond to a

survey. The survey was built using GSA’s Touchpoints customer experience feedback solution

and was available starting on March 19, 2024 (taxpayers who used Direct File prior to this

point would not have had the opportunity to take the survey). Figures 5 and 6 show taxpayer

answers to Touchpoints survey questions about how they accessed Direct File and what

method of filing they used last year.

Figure 5. What type of device did Figure 6 How did you prepare your federal

you use to access Direct File? ¹⁰ income tax return last year?

9 Taxpayers were eligible for Direct File if they lived in one of the twelve parƟcipaƟng states for all of 2023. “Other” includes taxpayers who moved to other states aŌer the end of the year, and servicemembers with military addresses, who are considered to reside in their home state.

10 Taxpayers could select mulƟple answers to this quesƟon, reflecƟng that taxpayers might use mulƟple devices to interact with Direct File, so percentages do not sum to 100%.

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