COC and coalition score victory for taxpayers with expansion of IRS free Direct File program
By Ishmael Bishop, COC staff
The IRS is continuing its free Direct File program and has offered to expand it to all 50 states and the District of Columbia in 2025, largely because of the success of a pilot program pushed earlier this year by Color Of Change and a coalition of advocates.
By participating in the pilot, thousands of taxpayers collectively saved millions of dollars in fees and hours of time in tax preparation, a process that can be both expensive and challenging for tax filers in identifying and claiming all the valuable tax credits they qualify for.
The Direct File platform allows taxpayers to submit simple tax returns directly to the IRS and bypass predatory tax prep companies that have taken advantage of people largely in Black and Brown communities across the nation.
Many of the companies hire unlicensed, unregulated people to prepare tax returns that are submitted to the IRS often with errors. The companies charge customers for advances on refund checks, sell unnecessary products and offer refund anticipation loans loaded with exorbitant interest rates.
An estimated 87 million taxpayers lose as much as $13 billion of their refunds to tax prep fees annually because the multibillion-dollar tax prep industry makes it difficult to access the free file system.
COC and members of the Coalition for Free and Fair Filing sought to change that by supporting the IRS’ efforts to create the direct-filing tool and advocating for people in the 12 pilot states to use it.
The push paid off. More than 140,000 filers in the pilot states used the free Direct File platform during the 2024 tax season, claiming more than $90 million in refunds and saving an estimated $5.6 million in tax preparation fees on their federal returns, according to the IRS. With the program’s success, the IRS announced May 30 that it is making the program permanent and expanding it to all states that want to opt in. COC and the coalition will be actively engaging with states to make the tool accessible to millions more people throughout the country.
“This expansion of Direct File represents money and time saved in Black households,” said Brandon Tucker, COC’s senior director of policy and government affairs. “Black communities have long been targets of deceptive practices by corporate tax giants, leading to higher costs and more barriers to tax filing.
“Direct File offers a free, trustworthy alternative that can help dismantle these barriers,” he continued. “It’s crucial that the IRS and Treasury continue to expand and improve this service, with dedicated outreach to Black communities beyond the upcoming tax season.”
A free tax filing option aligns with COC’s mission to protect Black communities from economic exploitation and to push for equitable solutions that spur economic mobility for Black families. With Direct File, taxpayers are empowered to more easily access essential benefits they’re eligible for, such as the Earned Income Tax Credit (EITC) and Child Tax Credit.
Throughout the Direct File pilot, COC has been at the forefront, exposing to members and the public the harms perpetuated by corporate tax filing services.
COC’s eye-opening report, “Preying Preparers: How Storefront Tax Preparation Companies Target Low-Income Black and Brown Communities,” released earlier this year with Better IRS, details the ways that tax preparation companies such as H&R Block, Jackson Hewitt and Liberty Tax Service exploit Black and low-income taxpayers.
The report details how the for-profit industry rakes in billions of dollars from working Americans, stealing away benefits that are much needed safety nets for low-income families. Brick-and-mortar preparation services are purposefully set up in Black and Brown communities and are known to employ unqualified and unlicensed preparers who lack basic training and regularly commit errors on tax returns.
The federal Government Accountability Office estimates that 60% of returns submitted by unenrolled preparers contain errors – unintended or intended. These mistakes by preparers can cause great harm to Americans, exposing them to audits and potential fines if refunds are larger than they should be or causing financial insecurity if refunds are incorrectly small. A January 2023 study revealed that Black taxpayers are audited at markedly higher rates than their non-Black counterparts. Black families ultimately wind up paying for the errors of the people who prepare their taxes.
Calculated correctly, federal tax credits, such as the EITC, can ease the financial burdens of 23 million low-and moderate-income families. By itself, the EITC lifts about 6 million people out of poverty annually and reduces income inequality between Black and white households by up to 10%.
But a portion of eligible families essentially are locked out of valuable tax credits because tax prep companies overcharge for their services. The cost to file is one of many barriers that make it impossible for low-income families of color to take home what is rightfully theirs.
The successful implementation and positive reception of Direct File is an example of what is possible when we push the government to develop common sense services. COC is not done. We will dig even deeper on our economic justice work, fighting to ensure the IRS is adequately funded to continue modernizing its services. We will continue educating our members across the country on the predatory nature of tax prep companies and their discriminatory business practices — and will continue encouraging people to use Direct File.
COC also is crafting tax policy recommendations for the benefit of Black people. The tax code has always worked on behalf of the wealthy, and now it needs to work for us. We are committed to ensuring that economic solutions meet the needs of Black people in this country. We hope you’ll join us in the work ahead.