Updated March 31, 2022
The Internal Revenue Service’s Free File Program (FFP):
Current Status and Policy Issues
The option to electronically file (e-filing) federal individual
purpose was to help the IRS reach its 80% e-filing goal by
income tax returns began in 1986. Since then its usage has
2007 by making electronic tax preparation and filing more
grown considerably. By the end of December 2020, 89% of
accessible to paper return filers without requiring them or
returns for the 2019 tax year were e-filed. Nonetheless, 17.6
the federal government to pay for commercial tax services.
million paper returns were filed for that year.
The key to success, senior Treasury officials thought at the
time, was for the IRS to establish a “single point of access”
As a policy objective, the IRS would like to achieve an e-
for lower-income taxpayers to free online tax preparation
filing rate of 100% because of its advantages over paper
and filing services provided by tax software companies.
filing. Generally, e-filing has a lower cost for processing
(The IRS did not achieve its 2007 e-filing goal until 2012,
returns and reduced error rates. E-filing also speeds up the
when 83% of individual returns were e-filed.)
processing of tax refunds for individuals who had too much
income tax withheld or overpaid their tax during a year.
As a first step in implementing the EZ Tax Filing Initiative,
the IRS tried to develop a digitized version of Form 1040
An element of the IRS’s strategy to promote universal
and accompanying schedules and instructions that could be
individual income tax e-filing is the Free File Program
accessed at no cost through WhiteHouse.gov. It soon
(FFP). The program permits individuals with adjusted gross
became apparent that the IRS lacked the resources and
incomes (AGIs) at or below a specified amount ($73,000
experience needed to efficiently launch such a project. To
for the 2021 tax year) to electronically prepare and file their
circumvent these obstacles, in January 2002, Treasury
federal income tax returns, free of charge, using software
Secretary Paul O’Neill asked IRS Commissioner Charles
provided by participating tax software companies, which
Rossetti to form a partnership with tax software companies
totaled eight companies at the start of the 2022 filing
to develop a system for providing free online tax
season. The IRS provides a direct portal on its website for
preparation and filing services for lower-income taxpayers.
qualified persons to file through the FFP. Taxpayers with
The resulting private-public partnership was (and still is)
AGIs above $73,000 can e-file their returns free of charge
called the Free File Alliance (FFA).
through the same portal using Free File Fillable Forms.
Structure and Evolution of the FFP
Since its creation in 2002, the FFP has had three goals:
The FFP began when the IRS signed an agreement with the
17 original FFA member companies on October 30, 2002.
Simplify tax preparation and filing for “economically
There was a clear division of authority and responsibility
disadvantaged and underserved” taxpayers;
between the IRS and the participating companies.
Provide more services to taxpayers who normally file
The initial agreement required the companies to make
paper returns; and
available at no cost their tax preparation and filing software
through IRS.gov to at least 60% of taxpayers ranked by
Encourage further growth in e-filing by giving lower-
AGI. The companies retained complete control over the
income taxpayers the opportunity to file their returns
scope of their free-file services and eligibility requirements,
free online through software provided by tax software
with one exception: each member company had to be
companies.
capable of providing free filing services to cover at least
10% of individual tax returns filed for a year.
Origin of the FFP
The FFP has its origin in two sources. One was the IRS
The IRS was responsible for enforcing member company
Restructuring and Reform Act of 1998 (RRA, P.L. 105-
compliance with the terms of the agreement. As a result, the
206). Among other things, the RRA directed the IRS to
agency was authorized to cancel the agreement with one
increase the share of e-filed individual returns to 80% by
year’s advance notice, if it determined that the companies,
2007, with assistance from the private sector. Achieving
over an extended period, were failing to provide adequate
this goal posed a significant challenge for the IRS, as the e-
or required coverage.
filing rate was 23.5% in the 1998 tax year.
A key component of the agreement arguably involved a
The second source was a directive issued in 2001 by the
trade-off between access to e-filing for paper filers and the
Office of Management and Budget’s (OMB’s) Quicksilver
potential benefits of the IRS creating a direct filing option
Task Force to implement President George W. Bush’s E-
for all taxpayers. The IRS pledged not to compete in the
Government Initiative. One of the 24 initiatives chosen by
market for tax software. In return, member companies
the task force was the EZ Tax Filing Initiative. Its main
agreed to offer free electronic tax preparation and filing
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The Internal Revenue Service’s Free File Program (FFP): Current Status and Policy Issues
services to low- to middle-income taxpayers. This meant
House passed a bill (Taxpayer First Act, H.R. 1957) to
that the IRS could not develop prefilled tax forms and make
reform various aspects of how the IRS interacts with
them available at no cost to taxpayers through a secure
taxpayers; it included a provision that would have
portal on its website.
permanently extended the FFP. The provision was opposed
by several groups, including some Members of Congress,
The IRS and the FFA have extended and revised the
concerned about media reports that some FFA companies
original agreement five times. These subsequent
earned revenue from FFP-eligible taxpayers who e-filed
agreements are linked to nine memoranda of understanding
their returns using the companies’ paid services. The 116th
(MOU), which apply to specific tax filing seasons.
Congress eventually passed a similar bill, but without the
FFP provision (P.L. 116-25).
The second agreement (2005) reduced the range of free
services a company could offer to eligible taxpayers,
Pros and Cons
limited the share of eligible taxpayers a single company
FFP proponents say it should be retained in its current form
could serve to 50%, and increased the share of taxpayers
because it saves low- and middle-income taxpayers and the
eligible for free filing through the FFP to the bottom 70%
IRS considerable money each year. According to the FFA,
of individuals ranked by AGI.
taxpayers saved an estimated $1.5 billion from 2003 to
2018 as a result of the option to file free under the FFP. In
The 2009 agreement expanded the scope of the FFP by
the same period, the FFA claims that the program has saved
adding free fillable individual income tax forms to the
the IRS hundreds of millions of dollars in processing costs.
services available through the program. Taxpayers of all
income levels were eligible to file using these e-forms. The
FFP critics contend that the current program is too flawed
2009 agreement also required FFA companies to embed a
to achieve its main goals. They say that member
link to IRS.gov in their landing pages for the FFP.
companies’ websites for FFP filing are too complicated, the
program’s take-up rate is too low, and the IRS has done too
The current agreement is due to expire on October 31, 2023
little to promote the program and monitor member
(see the 2021 addendum to the 2018 MOU). It includes
companies’ adherence to the MOU. Critics are also
provisions intended to raise taxpayer awareness of the
concerned that some FFA companies (including Intuit and
program, encourage eligible taxpayers to regularly use it,
H&R Block) may have benefited in recent years from the
and prevent participating companies from excluding their
FFP by marketing paid services to FFP-eligible taxpayers.
Free File landing pages from internet searches for the FFP.
In a recent report, the Treasury Inspector General for Tax
The MOU does not specify that the IRS should refrain from
Administration found that over 34.5 million FFP-eligible
developing its own return filing system.
taxpayers e-filed their returns by using member companies’
commercial software in FY2019.
The structure of the FFA has shifted since 2020, as the
program’s two largest providers of tax preparation and
Options for Reforming the FFP
filing services withdrew from the FFA: H&R Block in 2020
Criticism of the FFP has led some to call for significant
and Intuit in 2021; together they accounted for two-thirds of
changes in the program. Two options appear to have
FFP usage in 2019 and previous years. Eight providers
attracted considerable interest among policymakers.
remain in the program, including TaxSlayer and TaxNet.
One option would retain the FFP but make certain critical
Use of the FFP
changes in how it operates. These changes would require
the IRS to invest more in promoting it among eligible
One concern about the FFP since it began in FY2003 has
taxpayers, and to more closely monitor member companies’
been its low usage rates. In the first year of the program, 2.8
compliance with the MOU. In addition, the MOU would be
million individuals filed their tax returns through the FFP,
revised to require member companies to disclose to the IRS
or 3.5% of all eligible taxpayers. Use of the program
the revenue they receive from marketing their paid services
peaked in FY2005, when 5.1 million individuals (or 6.4%
to FFP-eligible taxpayers.
of eligible taxpayers) filed through the FFP. Since then
(except for 2009), FFP use has mostly declined. Of the
A second option would replace the FFP with a filing system
154.1 million individual tax returns filed in FY2019, 2.8
that simplifies the process, especially for taxpayers with
million were filed through the FFP (2% of eligible
uncomplicated tax situations. This option could be realized
taxpayers). Use of Free File increased during the first year
in several ways. For instance, taxpayers might prepare and
of the COVID-19 pandemic. According to the IRS
file their returns through a secure portal on the IRS website;
Taxpayer Advocate’s 2020 report to Congress, “8 million
or the IRS might prefill returns for individuals whose
citizens” received an economic impact payment (i.e.,
income and deductions are completely reported to the IRS
stimulus check) via the FFP in FY2020, and another 4.2
by third parties, and then send them to taxpayers for their
million taxpayers (about 4% of eligible taxpayers) used the
review and acceptance; or the federal government might
FFP to e-file their tax returns.
adopt a return-free filing system based on exact withholding
or tax-agency reconciliation.
Policy Issues
In the 116th Congress, discussion of the FFP focused on
Gary Guenther, Analyst in Public Finance
whether to codify the program and to permit the IRS to
develop its own competing software. In April 2019, the
IF11808
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The Internal Revenue Service’s Free File Program (FFP): Current Status and Policy Issues
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https://crsreports.congress.gov | IF11808 · VERSION 5 · UPDATED