# **Direct File Taxpayer Foundational Research** June 2024 \- Updated May 2025 This report aims to describe the US tax filing experience and landscape, focusing on taxpayers eligible for the Direct File (DF) Pilot TY2023. It was derived from several usability testing studies conducted during the tax seasons for TY2023 and TY2024. * The Taxpayer and the Tax Filing Ecosystem * What are users' tax filing needs and expectations? * How do life changes and situations impact the tax filing experience? Direct File? * Where and how do taxpayers seek help? What kind of help are they looking for and where? * Trust, Confidence, Insecurity and Fear in the Tax Filing Experience * How does confidence ebb and flow during the tax filing process? * How does confidence influence trust in Direct File and the IRS? ## **The Taxpayer and the Tax Filing Ecosystem** This ecosystem described below (also known as the social-ecological framework) is a tool widely used in social work and academia to help understand how behaviors form based on characteristics of individuals, communities, organizational, and societal factors. This framework can help contextualize taxpayers' behaviors. Over the course of tax filing, they experience and interact with a variety of complex and dynamic influences that operate at the individual, interpersonal, institutional, and governmental level. The content was derived from several IRS Direct File usability testing studies conducted during TY2023. It covers the scope of that year and may not include tax situations that were out of the scope of Direct File that year. At the core, individual factors are usually more diverse and variable from person to person. At each level, all the way to Government, factors are considered more solidified and less variable. Across all layers there are factors that can be addressed easily if they pose problems to the experience (tax knowledge), while others may be more difficult to fully resolve (accessibility), and some are extremely difficult (complexity and rules of tax law). ![research-foundations-image_1](https://github.com/user-attachments/assets/8a0968bc-104d-4ba5-a188-9ab395744c23) * Individual Level Factors * Interpersonal Level Factors * Institutional Level Factors * Government Level Factors ### **Individual Level Factors** * Levels of confidence in tax knowledge and finance * Low confidence, insecurity and fear can become paralyzing, leading taxpayers to quit * Too high confidence and it can compromise accuracy because they speed through the tax filing process * Perception that level of tax knowledge and financial knowledge are intertwined (e.g., low finance savvy corresponds to low tax knowledge savvy) * Tax Literacy * Complexity of tax guidance and tax law vs. tax situation and the taxpayer's ability to understand both * Age * Youth are new to tax filing; unclear about how to file; may lack access to quality guidance; unclear about when they need to start filing * People who've retired often don't need to file but do it out of habit * Financial health * Low-income families may not claim EITC due to a misguided fear that the extra income will disqualify them for SNAP or other benefits * Low-income taxpayers may think they don't need to file taxes, losing access to significant tax benefits * Inability to pay for tax filing assistance even though they're not confident enough to do it on their own * Insufficient funds can lead some to be unable to pay their tax bill, or rely on the refund to live their daily lives * Owing to the IRS can be an unexpected, significant financial hit for some * Financial organization * Collecting and having documents in order to complete tax filing * People from lower income brackets are more likely to have many different jobs and documents to collect * Having documents in order in case an audit happens * Tech literacy * Low tech literacy makes it less likely that people will be comfortable or trust doing anything financial online * Low tech literacy makes people less confident fixing issues/rejections from online self-filing tools * Location access * Internet and cellphone data access may be limited in remote areas, impacting access to tax information and self-prep tools * Remote areas may have reduced access to postal services, impacting tax documentation receipt and sending of paper tax returns when those are needed * Residency status * Have income/lived in more than one state in the tax year makes filing complicated * Living abroad makes US tax responsibility confusing and complex * Filing from abroad–can be difficult to gather and report information for taxes * Recent naturalization or visa change can cause unclear tax situation changes * New resident in the US, never filed, unclear about tax system and responsibilities * Tax responsibility in multiple countries * Lack of stable home address blocks some people from getting documents, checks, and tax benefits ### **Interpersonal Level Factors** * Marital status * If married filing jointly, one partner may take the lead on tax filing while the other takes a backseat * Being separated but still financially entangled * In the process of separating/divorcing but still filing together * Hostile separation makes it harder to get to an agreement on who claims credits and deductions for children and property/income, or ensure proper documentation of their status is available * Dependent support * Shared custody of kids–formal and informal agreements make it harder to ensure proper documentation of their status is available * May miss credits/benefits due to agreements that don't include documentation for claiming * Inability to support and/or provide shelter for their own kids may make it painful to answer questions around dependent support * Dependents supported by people who are not parents may complicate ability to claim certain credits * Caregivers of adults provide support can have difficulty claiming certain credits * Death of a child or dependent may have tax implications, and being asked about it can be a stressful experience * Options for tax filing support * Family for the most part (not friends, as they do not want to discuss their financial information) * Difficulty evaluating tax preparers causes some people to be more negatively affected by fraudulent tax preparers causing them to get audited more ### **Institutional Level Factors** * Employment income sources * W-2 employment * 1099 employment \- gig economy * Unemployment periods and income * Multiple 1099s and w-2s * Other income sources * Brokerage investment instruments * Crypto * Retirement savings (IRA, 401k, etc.) * Scholarship/fellowships in some situations * \+ more * Debt * Mortgages * Student loans * Options for tax filing support * Accountant * Self prep with Customer service option (usually paid) * Online search and forums * Community groups * Options for tax filing * Self-prep vs. accountant * Paid vs. free options * Expenses * Student expenses * Health expenses, HSA (Health Savings Account) * Health insurance * Different plan sources (marketplace, employer, self-paid, Medicare/Medicaid) require different ways of reporting, and taxpayers often don't know the difference between them. ### **Government Level Factors** * Tax law * US tax law is very complex and difficult to understand * Tax law doesn’t clearly map to the complexity of life and financial situations * Federal vs state vs local taxes * Taxpayers are required to file taxes with different government bodies depending on where they live/work making the process more complex. That information is often redundant, and in some cases state and local taxes paid influence federal taxes paid and vice-versa * Options for tax filing support * IRS.gov website is comprehensive, but often not enough to answer tax questions around specific life situations ## **Trust, Confidence, Insecurity and Fear in the Tax Filing Experience** As taxpayers move through their tax filing journey each year, their confidence ebbs and flows. Too much confidence can lead to mistakes and even unintended tax fraud. The tax filing experience often starts at a low confidence level depending on the situation, with taxpayers feeling mostly insecure or even fearful. Low confidence and fear can lead to mistakes, anxiety, stress and even paralysis. Balancing keeping taxpayers' confidence high while keeping tax returns accurate depends on simplifying the process as much as possible and providing validation as needed. This content was derived from several IRS Direct File usability testing studies conducted during the tax seasons for TY2023. It covers the scope of that year and may not include tax situations that were out of the scope of Direct File that year. A healthy level of confidence in the Direct File experience has the power to increase trust in Direct File and the IRS. Increased trust can help demystify the tax filing process and the complexity of people's tax situations and experiences.What Causes Low Confidence, Insecurity and Fear * **The complexity of the tax code:** On their own, taxpayers don't feel knowledgeable enough to be confident they have done everything they're supposed to do. It's hard to know the ins and outs of what would maximize their tax return and keep them compliant with the laws. * **Tax filing is high stakes:** Taxpayers are concerned about both being noncompliant with tax law and with losing out on refund money. Tax filing is often mandatory and time-sensitive, and it opens doors to other benefits. This causes a lot of people to be insecure as a baseline feeling when they're filing their taxes. * **Perceived complexity of their tax situation:** This doesn't necessarily reflect the reality of the tax code, it could be just an impression based on a life change they didn't have to address before (sudden influx of income, a purchase or sale, etc.) If a taxpayer’s filing feels complex in their mind, they worry that Direct File will not have all they need due to its limited scope. Some taxpayers will have that impression of other free (and even paid) self-prep methods. * **Familiarity:** Taxpayers feel like there is a high learning curve for any new method/tool. Familiarity with a tax filing method breeds confidence in the method, not confidence in their tax knowledge. Users are familiar with the way their previous method asks them questions; when Direct File words things differently or the flow is different than what they are used to it makes the questions feel "incomplete" compared to their past experiences. * **Inability to overcome issues (e.g., rejection):** Getting a rejection may result in lower confidence momentarily, but that only sticks if the rejection is difficult to solve. When the rejection codes and descriptions don't give adequate information to solve the problem quickly and easily, users start to shut down and want to drop out. ## **What Increases Confidence** * **Clean and consistent look and feel:** The refined and modern look of the tool helped taxpayers feel the tool was updated and legitimate making them more comfortable using the tool for their filing and increasing confidence in their submission. “\[in the past\] The IRS website looked so outdated, so I didn't know if it was legit information.” * **Ease of use:** The ease of using the tool increased taxpayer confidence. * **Help content in plain language:** The snacks made them feel empowered and knowledgeable during the process. They felt help was easily accessible and adequate. “I feel like whoever created the tool they really were sensitive to people who didn't know what the heck they're doing \[and\] isn't a tax advisor. Mine \[taxes\] are so simple, I had everything I needed.” * **Having their tax situation clearly reflected:** When people perceive that their tax situation may be complex, it's helpful to get confirmation they're doing the right thing by seeing it reflected in the help content, questions, etc. When that's not available, searching online until they find a clear answer that mirrors their situation brings reassurance--but often that answer is found in online forums, and it may not always be accurate. * **Validation from experts:** Having an accountant, a tax expert, or a knowledgeable loved one go through the return helps them feel confident in their work. This will lead many taxpayers to pay a premium for access to a tax expert when using self-prep tools, or find an agreement with an accountant to check their work before submitting. * **Successful submission:** As a type of validation from experts, taxpayers associate being able to successfully submit their taxes with “correctness.” Being able to submit their taxes with the IRS makes them feel more confident that they have completed their taxes correctly. * **Ability to overcome issues easily (e.g., rejection):** If they later receive a rejection, they become confused (most are unfamiliar with the difference between submitted and accepted/rejected). Some are discouraged, but often do not shut down after the first rejection. Confidence in themselves and the tool is increased when they can solve the problem. [image1]: