Expanding IRS Direct File program could save Wisconsinites $141 million in filing fees

A new report by the Economic Security Project details how an expansion of the new IRS Direct File program could save Wisconsinites $141 million in annual filing fees and generate $339 million in value for the state.

The IRS Direct File pilot program launched earlier this week in 12 states, creating a free and easy way for many Americans to file their annual tax returns. In addition to saving taxpayers time and money in preparing their returns, the Direct File program also makes it easier for individuals and families to claim tax credits they qualify for.

The program was created as part of the Inflation Reduction Act, which is already helping Wisconsinites keep more money in their pockets by capping prescription drug prices, lowering energy rates, and more.

“Thanks to the Inflation Reduction Act, many Americans now have access to a free and easy way to file their tax returns. Expanding the Direct File program to Wisconsin will save millions and help working families access tax credits and keep more of their hard-earned money,” said Opportunity Wisconsin Program Director Meghan Roh.

Direct File is the Internal Revenue Service’s revolutionary new project to provide free, simplified, public online tax filing for the first time in U.S. history. The program launched in 2024 with a pilot program that is intentionally restricted in scope to a small share of the taxpayers that could ultimately benefit from the service. At scale, its potential benefits for American taxpayers are extraordinarily large. A public option for tax filing, Direct File can make the tax preparation market more equitable, inclusive, and competitive.

This report is the first to estimate the total financial benefits of the Direct File program for American taxpayers. It finds that, at maturity in five years, Direct File would save the average user $160 in filing fees and hours of their time each year, which saves Americans a total of $11 billion annually between filing fees and time costs. By breaking down barriers to filing, Direct File would also deliver up to $12 billion each year in additional tax credits to low-income families currently missing out. Appendix A breaks down the projected taxpayer savings and impact by state.

These savings represent an enormous return on investment given the small net cost of the program. For every dollar invested in the program, Direct File delivers $106 in benefits to American taxpayers, between savings on tax preparation fees and access to untapped tax credits. Few programs deliver this kind of bargain.

Specifically, Direct File would deliver two types of benefits to taxpayers:

• Saving tax preparation costs and time for existing filers. Direct File could save existing tax filers $8 billion in filing fees and an additional $3 billion in time costs. In addition, it could spare more than 400,000 filers a year from the stress of IRS correction proceedings and audits. This does not even consider additional gains to these taxpayers in terms of increased privacy and not having their data sold to third parties.

• Closing the tax credit uptake gap. Direct File could meaningfully close the long-standing refundable credits coverage gap — tax benefits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) that low-income households are entitled to but do not claim. In total, Direct File could deliver $5-12 billion in federal refunds per year to families who currently do not file returns. If EITC and CTC expansions from the American Rescue Plan were re-enacted, this figure would increase to $19-47 billion per year. These estimates do not consider additional federal credits, or additional benefits from state credits and refunds that currently go unclaimed.