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The IRS Web site offers the opportunity again this year for free tax filing. The big change this year: only those who earn $50,000 or less are eligible. By Bankrate.com Free online tax filing is back. It's just for fewer people this year. The Free File Alliance, a joint e-filing effort by the Internal Revenue Service and tax-software providers, kicked off its fourth year on Jan. 18. The program was begun in 2003 as a way to encourage taxpayers to use computer software to complete their returns and then hit "enter" to transmit them electronically instead of printing the forms for snail-mailing. Last year, around 17 million taxpayers did their taxes via computer and e-filed them. More than 5 million of those returns came in through the "Free File" program.
Last year, however, the option to file for free by going to the IRS Web page was open to every taxpayer, regardless of how much they earned. This filing season, only taxpayers with adjusted gross incomes of $50,000 or less will find a way to file for free using one of the Alliance's 19 partner programs. At the IRS site, you can browse all software options where company-specific requirements to file for free vary based on such things as your income, state of residence, military status or age. Or you can use a filtering option that will narrow down your choices to software companies that match some basic information you enter. Related news and commentary on MSN Money
Repositioning the initiative The decision to restrict access seems counterintuitive, especially since the IRS is working on meeting a congressional directive that it must collect 80% of tax returns electronically by 2007. But the IRS and software companies say the new format won't be a problem for either public or private interests. According to an IRS release announcing this year's program, more than 70% of the nation's taxpayers, or more than 92 million people, qualify for Free File this year. Another 3 million taxpayers who previously filed returns through TeleFile, a phone-filing option that has been discontinued, now automatically qualify for Free File. The change to limit the program to middle- and lower-income filers was a joint decision between the IRS and the consortium of software providers, says Julie Miller, spokeswoman for Intuit, maker of TurboTax. "This public-private partnership was designed to bring e-filing to underserved and low-income taxpayers," says Miller. The primary reason to limit eligibility this year "was to restore Free File to its original philanthropic mission and intent. "Quite frankly, it had strayed from that. The change hasn't reduced the number of eligible filers as much as refocused efforts to get services into the right people's hands." Miller says that last year, only 2% of filers who previously paid to use TurboTax opted instead to file for free with the software at the IRS site. That may be in part because if a TurboTax filer uses the free program, or even the company's separate online filing program, the taxpayer can't transfer previous tax year data to the current return. That option is available only to taxpayers who buy the TurboTax software for their personal computers. Many, says Miller, find it worth the product's price to have the data continuity year after year in their personal computer files. Some free-for-all filing still available Another tax preparation and filing program, TaxACT, also is a part of the Free File Alliance again this year. In addition to participating in the official government effort, the software's maker, 2nd Story Software, has made free filing available to all taxpayers, regardless of income. The catch: In order to file for free, higher-income taxpayers must go directly to TaxACT's Web site, not the IRS Free File page. Once at TaxACT, they can use the company's Web-based program or download it to their own computer. Also, the free filing is via TaxACT's standard version, which doesn't include state tax material also needed by most U.S. filers. Upgraded versions must be purchased to access that and other options. "Two years ago, we were the first to offer free for everyone," says Lance Dunn, president of 2nd Story Software. "This year, the rules have changed and we won't be able to make that offer (at the IRS site) anymore." Dunn acknowledges that his company is a relative newcomer in the tax-software world and TaxACT's more-inclusive free file offer is a way to establish a relationship with the taxpayer. Last year, via the official Alliance site, the company was able to establish customer relationships with 1.5 million free filers. Concerns about add-ons As both TurboTax and TaxACT representatives noted, more tax software options are available to all taxpayers for a price. It's this add-on potential that concerns consumer advocates. In previous years, they've voiced concerns that taxpayers are sitting ducks for the marketing of other tax-related and not-for-free products, ranging from state return forms to audit insurance policies to refund anticipation loans, or RALs. "There's a whole strata of the economy aimed at the working poor when they have this (tax refund) cash in hand once a year," says Jean Ann Fox of the Consumer Federation of America. "Anti-poverty programs are meant to lift the working poor out of poverty, but some RAL lenders and others, like car dealers who offer to do taxes and use the refund as a down payment, are lined up to get that money. "There are a lot of hands out, a lot of competition for this anti-poverty money." Free File Alliance Executive Director Tim Hugo noted in an IRS statement that under the new agreement, which lasts for four years, the program has taken steps to address these concerns:
"The first year they had Free File, you had to sign up first with a company to determine whether you'd get extra charges; for example, what it would cost you if you also file a state tax return," says Fox. "That changed subsequently where the companies have to lay out what they offer for free and what you would have to pay for." Free-file consumer beware Fox says consumers still need to pay close attention to every option when filing electronically. "Whereas it's a felony for a tax prep company to give your personal tax information to a third party, as long as you've given consent, they can do it legally," says Fox. "Make sure you knowingly give that consent. "As you click your way into these things, you have to agree to their privacy policy, so you need to pay attention to what you're clicking on." CFA and other groups remain concerned that the government-tax industry partnership is seen by many taxpayers as an implicit endorsement by the U.S. government of the companies and all the services they market. And advocacy groups continue to call for a tax-filing program where taxpayers can go online and submit their returns directly to the IRS. That, however, is not likely to happen until four years from now, at the very earliest, when the current Free File Alliance agreement runs out. | |||||||||||||||
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