IRS Direct File vs. Free File: The Fight for a Free Tax Return
Reflections on VITA: Efficiency vs. Accessibility
VITA is a wonderful program that showcases the government’s ability to leverage bulk procurement power to secure deep discounts. By negotiating on a massive scale, they’ve managed to turn tax preparation into a high-volume, low-cost utility.
The Math: A High-Value ROI The numbers behind the 2021 contract are a testament to this efficiency. The parent company of TaxSlayer secured a $49M contract to provide services through 2026. When you break that down against the volume of 3.5 million returns annually (roughly 17.5 million over the five-year term), the software and support cost is just $2.80 per return.
Even when you factor in the operational side—the $36M per year in grant funds used to prop up the 11,000+ volunteer sites—the total cost per person sits at approximately $13.08.
Not too bad for an army of tax preparers! When you consider that the private industry typically charges $80+ for a single copy of TurboTax or upwards of $200+ for professional CPA support, the government is getting a massive return on their investment.
The Human Element: Beyond the economics, there is a social value to VITA that is hard to quantify but impossible to ignore. It serves as a vital bridge, bringing the community together in a way few government programs ever do. For aspiring accountants and finance students, VITA is the ultimate training ground—a place to gain "boots on the ground" experience by applying complex tax laws to real-world scenarios. By helping their neighbors navigate the system, these students earn local trust while building a professional pipeline for the next generation.
Furthermore, these 11,000+ sites are deeply anchored in the community, often operating out of local libraries, community centers, and churches. They provide a sanctuary where the "scary" world of the IRS is translated by a friendly, familiar face. In this environment, a cold bureaucratic requirement is transformed into a genuine moment of local support and mentorship.
The Friction: The Discovery Problem However, the efficiency of the "spend" doesn't always translate to a smooth experience for the taxpayer. Identifying a site that actually meets your needs is often a daunting task. Despite the sheer volume of 11,000 available locations, the digital infrastructure feels disjointed:
Information Gaps: Websites are not consistently updated, leading to conflicting information across different platforms.
Lack of Convenience: Even with so many locations, the process rarely feels "easy." Most sites don't offer the clarity a taxpayer needs to know if their specific tax situation will be handled correctly.
The Virtual Hurdle: There is an extra layer of frustration for those seeking modern solutions. Identifying a virtual filing option is arguably the most difficult task of all, as the current search tools simply don't provide a clear path for remote assistance.
A Better Path Forward: But, neither here nor there… This is still a recurring cost of $13+ per person, per year, forever. It remains a persistent burden on our taxpayers in an area where we have the technology to do better. We shouldn't settle for "good enough" when the process could be seamless.
Free File is the alternative solution that the Government established with the support of the Tax Filing Industry.
https://www.usaspending.gov/award/CONT_IDV_2032H521D00002_2050
https://www.irs.gov/about-irs/tax-volunteers-support-taxpayers-in-need
https://irs.treasury.gov/freetaxprep/
https://freetaxassistance.for.irs.gov/s/sitelocator
https://www.aarp.org/money/taxes/aarp-taxaide/locations/
The Failure of Free File: A Corporate Trap
As much as it would make sense for Free File to succeed, history has shown us that it was a mistake to allow private corporations to take the lead in "making the taxpayer’s life easier." ProPublica has done some amazing investigative journalism on this front, performing a deep dive into the systemic issues within the program. Their findings essentially distill down to one grim reality: Free File existed primarily to prevent taxpayers from ever accessing a truly seamless, government-run filing experience.
For more than 20 years, we have seen systematic lobbying designed to stifle any real progress toward a better tax environment. Intuit and the Free File Alliance created a program that was frustrating by design, hiding the “Free” options behind layers of digital red tape and obfuscation.
Deceptive Marketing and Technical Loopholes: In practice, “Free File” was rarely ever free. It became a trap where deceptive marketing and clever technical loopholes allowed industry giants like Intuit/TurboTax to hide the actual location of free services from search engines. These companies used aggressive marketing to lure taxpayers into their ecosystem, only to hit them with an endless barrage of "upsell" prompts. Taxpayers frequently found themselves deep into a return only to be told they needed a paid upgrade to finish, ultimately forcing them to pay significantly more than they ever should have.
The Math: A Terrible Return on Investment These predatory strategies by the Free File Alliance worked exactly as intended, driving usage lower and lower. By 2022, only 2% of taxpayers were using the service, even though a staggering 70% of the population actually qualified for it.
To put some "rough math" to the 2024 filing season:
Total Returns Filed: 176.8 million
Total Free File Users (2%): ~3.5 million
The Opportunity Cost: If we assume these 3.5 million users cost the same as our VITA benchmark of $13.08 per taxpayer, we can conclude that the American public effectively traded away a universal Direct File experience for a measly $45.8M in corporate-managed services.
What an absolutely terrible return on our investment. We’ve handed over our taxpayers' best interests to the very people who have a multi-billion dollar incentive to keep us confused.
A Better Alternative At the end of the day, those 3.5 million taxpayers would have been much better off seeking out a VITA volunteer for actual support instead of wasting their time navigating the minefield of the Free File Alliance. Free File is a system built on bad faith and corporate greed.
Thankfully, the government finally decided to stop playing the industry's game and pursue Direct File.
https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2023/01/ARC22_MSP_Glance.pdf
https://www.irs.gov/statistics/returns-filed-taxes-collected-and-refunds-issued
https://www.irs.gov/filing/irs-free-file-do-your-taxes-for-free
The Rise and Sacrifice of Direct File
2021 marked a turning point. The Free File Alliance didn't just fail; it imploded when the industry's heaviest hitters—Intuit’s TurboTax and H&R Block— pulled out of the program. This exit came due to the discovery that these players were intentionally and deliberately hiding "free" options from search results to protect their bottom line. With the alliance effectively gutted, the door finally cracked open for a real alternative.
In 2022, the Biden administration seized this opening, using the Inflation Reduction Act to earmark funds for a truly free, government-run filing system. By 2024, despite a relentless barrage of lobbying and political pushback, Direct File finally became a reality. It was a historic moment where the government proved it could bypass corporate gatekeepers to provide a streamlined service. Unfortunately, that progress was short-lived; the second Trump administration cancelled the program despite evidence that it was becoming a highly cost-efficient solution for the American taxpayer.
The Scalability Problem vs. The Reality of the Pilot When we look at the closing report to Congress, the potential for long-term savings was undeniable. Like any tech platform, Direct File was a "scale" game. The report projected that:
At 5 million filers: The cost would have stabilized at $15.58 per return.
At 25 million filers: The cost would have plummeted to just $9.96 per filer.
To put that in perspective, 25 million filers represent about 14% of the total filing population—a massive chunk of the country that could have been filing for under ten dollars a head and would have continued to decrease as more of the filing population participated.
However, as with any pilot program, the early numbers tell a different story. During the 2023 and 2024 pilot phases, only 437,334 filers took advantage of the service. Because the startup costs and infrastructure were already paid for, this resulted in an initial spend of $72.8M, or roughly $166.46 per filing.
The Cost of Stifled Progress While critics and the new administration were quick to point to the high initial "per-filing" cost of the pilot as a justification for the axe, that perspective is intentionally short-sighted. They are deliberately ignoring the long-term roadmap in favor of a political talking point. In any tech-driven infrastructure project—especially one aimed at disrupting a multi-billion dollar industry—the first few years are defined by "growing pains" and heavy upfront investment. You don't judge the cost-efficiency of a new bridge by the first ten cars that drive across it; you judge it by the millions it will carry over the next decade.
The reality is that adoption of a truly free, government-run filing system was trending toward a future of massive, sustainable savings for the American taxpayer. We were watching the birth of a utility that would have eventually cost less than a lunch special per person.
By killing Direct File in its infancy, the government didn't actually save the public any money—they just shifted the bill back to the individual. This move was a deliberate choice to ensure that taxpayers remain tethered to an expensive, corporate-controlled environment. It wasn't about fiscal responsibility; it was about protecting a monopoly and strangling a competitor before it could prove its worth. We had a chance to permanently lower the cost of a mandatory civic duty, but instead, we allowed the gatekeepers to win.
https://www.irs.gov/pub/irs-pdf/p5788.pdf
https://home.treasury.gov/system/files/131/Report-Replacement-of-Direct-File-2025.pdf
Opening the Aperture
In the wake of Direct File's sudden cancellation, the US Government is once again attempting to pivot back toward a re-energized focus on the Free File option. However, this feels less like a step forward and more like a return to a broken status quo. We are essentially doubling down on a system defined by the limitations established by lobbying interests—interests that have spent decades ensuring that "free" remains as complicated and hidden as possible. While we struggle to negotiate the terms of our own surrender to the tax-prep industry, we are left with a fragmented landscape that prioritizes corporate profits over taxpayer convenience.
However, when we open the aperture and look at the pursuits of other developed nations, we see a very different reality—one that makes the American "struggle" look entirely self-imposed. In many parts of the world, tax season isn't a season of dread or high-priced software; it is a non-event.
Countries such as Denmark, Spain, Singapore, and Taiwan, among many others, have moved far beyond the debate of "who provides the software." They have adopted easier-to-use, streamlined, and often pre-completed tax options for their citizens. In these systems, the government simply sends the taxpayer a summary of the data they already have, and the citizen either confirms it with a single click or makes a quick adjustment. It is a service-oriented approach where the state takes the burden of calculation off the individual’s shoulders.
Comparing our current "re-energized" Free File efforts to these global benchmarks reveals a staggering gap in both technology and intent. While other nations treat tax filing as a seamless administrative utility, the US continues to treat it as a profit center for a handful of private companies. As we look at the international landscape, the question isn't whether a better system is possible—it's why we are the only ones still pretending it isn't.