January 2008

IRS Again Offers FREE Online Filing for Most Taxpayers

By Ira Wilsker
iwilsker@apcug.net

Obtained from author with the author's permission for publication by APCUG member groups.

            It is that time of year again. Now is the time of the annual W-2 and 1099 forms. Once again, the IRS, through its Free File Alliance partners, is offering most of us the ability to prepare and electronically file our federal income taxes for free. This year, for most of the free tax preparers, almost anyone with an adjusted gross income of less that $56,000 can prepare his taxes online and electronically file them for free. At present, 20 tax preparation companies are participating in the Free File Alliance. According to the IRS, 70% of all taxpayers, or about 98 million wage earners, can prepare their taxes online and e-file, all for free. Since its inception in 2003, over 24 million tax returns were prepared and filed through the Free File Alliance, of which 4.8 million were filed last year.

For the first time, almost all taxpayers, regardless of income, can use the common IRS forms online and file their returns electronically, for free, just as if they were filling in the traditional paper forms. The IRS states it this way, on the IRS.gov website, “Regardless of income level, taxpayers who are comfortable with filling out paper tax forms and who don't need extra assistance can use the IRS's new Free File Fillable Forms. These new online versions of paper tax forms that can be e-filed are available for the first time by visiting the IRS.gov Free File site.”

Not just can taxpayers use the IRS online e-file system for free, but if a refund is coming, it may be received in as little as 10 days. The IRS does not charge a fee for the online tax preparation or for e-filing. Online filing is safe, according to the IRS. “E-filed tax return information is protected through encryption. Also, taxpayers receive an acknowledgement within 48 hours that the IRS has accepted their return.” The IRS goes on to say, “This year, the IRS and its partners are offering a new option, Free File Fillable Forms, which opens up Free File to virtually everyone, even those whose incomes exceed $56,000.”

Most 1040 Forms Are Available

For those with an adjusted gross income of less than $56,000, selecting one of the 20 free online tax preparers would be a wise choice. There is a button on the IRS website, “Help me Find A Company”, to help the taxpayer select a free online company based on eligibility criteria. Different Free Filing Alliance members have different eligibility requirements for free preparation services, ranging from state of residence, age, income range, eligibility for an earned income tax credit, to military status. I went online to try one of the companies, and it was an easy process to complete an online tax return. The site used an interview method where a series of planned questions were asked online, and typed responses filled in the blanks. I was asked questions about marital status, and different forms of income. I was also asked if I lived in an area that had been a federally declared disaster area in 2008, to determine if I was eligible for special benefits. Adjacent to most questions was a “learn more” link, which opened a popup window which explained the item. There was a request online for my bank routing information such that my refund could be direct deposited. Upon completion of the questions, and filling in the necessary fields on the website, my return was checked for accuracy. With a few more mouse clicks, my return would have been e-filed directly with the IRS, and my refund would be direct deposited in my account in as little as 10 days. It was noted that I would receive an email confirmation from the preparer within 48 hours acknowledging the filing of my tax return.

Security was provided to the internet connect via online encryption; while not perfect, it does provide a reasonable amount of security and safety. This was confirmed both by the “https” in the web address, and the closed padlock in the corner of my browser, which indicated a secured connection. In terms of privacy, all of the participating companies must comply with IRS privacy guidelines as a matter of contract. While there are the 20 providers of free federal tax computation and e-filing, most of these companies offer additional services for a fee. The most common additional paid service is the preparation of state taxes, and when offered, this is a voluntary option and not a requirement for the free federal service. A few of the providers also offer the preparation of state income forms for free, but most charge a fee for state returns.
 

"Most of the 20 providers ... offer other services ...
such as state filing"

The tax preparation companies participating in the Free File Alliance range from well know providers, such as H&R Block, to well known software companies, such as TurboTax. The well respected provider of free tax software, TaxAct offers the free online service through the IRS website to those with an adjusted gross income below $56,000, but charges only a $7.95 fee to those not eligible for the free computation and e-filing. TaxAct also offers a “free for everyone” service and e-filing from its website at www.taxact.com , with nominally priced “Deluxe” (federal only, $9.95, state $7 extra) and “Ultimate” (state included, $16.95) tax preparation services online. TaxAct also offers inexpensive preparation and e-filing of state income taxes. There are several lesser known companies linked on the IRS site, but all have been tested for accuracy and are acceptable to the IRS. A few of the services also have websites and tax forms in Spanish and most explicitly include the new Form 982 (Mortgage Forgiveness Debt Relief).

We all have a choice in regards to preparing our federal (and state) tax returns. We can use a CPA firm, a commercial tax preparation company, commercial or free computer software, or pencil and paper IRS forms. We can mail paper forms to the IRS, or we can e-file through a variety of methods. For many of us, using one of the free filing services may be a proper way to perform this onerous annual task, that most of us dread doing, but still do it effectively and for free. If you feel comfortable doing your taxes online, this IRS Free File Alliance may be a worthwhile alternative, and you can not beat the price.

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