Electronic tax filing now free for all at IRS Web site
Wed Jan 19,11:58 AM ET Business - USATODAY.com
Sandra Block, USA TODAY
For the first time, anyone who logs on to the IRS Web site will be
able to prepare and file their taxes electronically for free.
In the past, participants in the Free File program, a partnership
between the IRS and private tax preparers, had to meet criteria related
to age, income or state of residence.
This year, however, tax software giant Intuit, maker of the popular
TurboTax software, is one of three firms that has scrapped all restrictions.
For now, anyone who goes to www.irs.gov, clicks on "Free File"
and links to TurboTax can prepare and file their taxes at no charge.
Preparers eSmartTax and TaxACT are also offering their services to
all taxpayers free.
The Free File program is designed to encourage more taxpayers to file
electronic returns, which are cheaper for the IRS to process. Filing
electronically also offers advantages to taxpayers by catching common
errors and speeding refunds.
The IRS expects half of the returns filed this year to arrive electronically,
including those sent through the free filing program.
Free File lets taxpayers avoid the cost of buying sophisticated tax
preparation software and fees charged for electronic tax filing.
Taxpayers who opt to go online and use the free electronic filing
program can browse 15 or more options, all tested for security and
accuracy by the IRS. The IRS, however, does not endorse any of the
tax products or other services offered for sale by participating companies.
To take advantage of the free offers, taxpayers must go through the
IRS site. Taxpayers who go directly to a preparer's Web site may be
charged a fee. At TurboTax.com, for example, the cost of a basic federal
tax return is $19.95.
Last year, Intuit limited free tax preparation and filing to taxpayers
under age 21 or over 62, filers eligible for the earned income tax
credit, and members of the military.
Intuit changed its policy because the Free File program has strayed
from its original mission of helping low-income taxpayers, says spokeswoman
Julie Miller. Some tax preparers were using the program "as a
customer acquisition opportunity," and applied much broader criteria,
The free offer does create "some financial risk" for Intuit,
but the company hopes many filers will pay for additional services,
such as a state tax return, Miller says.
Intuit has the option of changing its mind. The program allows participants
to revise their criteria during the tax season.
H&R Block, Intuit's main competitor, has limited its free offer
to taxpayers with adjusted gross income of $34,000 or less. Tim Gokey,
president of Block's U.S. tax division, says the unrestricted offers
"aren't in the original spirit" of the program. Gokey says
Block is "committed to competitively serving this market and
will act accordingly."
The agreement between the IRS and private tax preparers requires the
participating companies, as a whole, to provide free online tax preparation
and filing to at least 60% of taxpayers. It doesn't mandate the criteria
participants use as long as that goal is met, says Bert DuMars, director
of Electronic Tax Administration at the IRS.
Nonetheless, about 80% of the 3.5 million taxpayers who filed free
last year had income of less than $35,000, DuMars says.
The free offers are limited to federal tax returns. Taxpayers who
want to file a state return usually have to pay extra.
This marks the last year, however, that taxpayers can use the telephone
as a paperless filing method. The IRS plans to end the TeleFile program,
available to taxpayers with simpler returns, because of shrinking
demand and a tightening budget.
"The number of people using it continues to go down between
7% and 10% a year," says DuMars. "It's become the most expensive
tax return process we have at this point."
The IRS expects 62% of taxpayers who file by telephone to turn to
other electronic filing methods when the program ends at the end of
the year. The remaining 37% are expected to complete their IRS forms
The National Taxpayer Advocate, an office dedicated to helping taxpayers
navigate the tax bureaucracy, opposed the decision to cancel the TeleFile
program. Taxpayer Advocate Nina Olson said more people filed by telephone
(3.7 million) last year than used the free electronic filing program
The IRS said it expects to see that trend reverse this year.