As you fill out your tax returns each year, it might occur to you that the government already knows the answers to all the boxes you are filling out on the form. If you get paychecks, the government knows how much money you earned and how much tax was withheld. It has copies of all the same forms you have.
Doesn't it seem like a waste of everybody's time for you to transcribe numbers from one form onto another and send everything in?
Makes you wonder: Couldn't the IRS show you a finished return and ask you if you want to make any changes? After all, an estimated 86% of taxpayers don't itemize—they just declare income, dependents, and taxes paid, all numbers the IRS already knows. Why aren't the returns for this vast majority of taxpayers prefilled by the IRS and simply sent to us for signature?
The answer is that many people would stop buying tax preparation software and services if a practical and logical alternative were to come out, and TurboTax and H&R Block spend big money making sure that never happens. The two tax service giants spent a combined $5 million in 2016 lobbying for a bill that would have prevented the government from expanding its little-known IRS Free File program to more taxpayers. Fortunately, the bill failed.Search Anyone Free
Frustrated Taxpayers, Meet IRS Free File
We see so many ads for tax preparation software and websites during tax season that we can think our choice boils down to paying for a service or preparing our returns by hand. But if you qualify, you can get all the accuracy and convenience of online filing at zero cost thanks to partnerships between tax services and the IRS.
The program is called IRS Free File, and here's what it does.
- Guided tax preparation for people whose adjusted gross income is under $73,000
- Software asks simple questions and does all the math
- Partner sites are not allowed to upsell you or tack on bank fees
- Free filing of your federal return
- Some state tax preparation and filing is also free
Never heard of IRS Free File? You're not alone. Less than 3% of Americans file their taxes with it, even though about 70% could.
In the program, the IRS partners with online tax services to give a majority of taxpayers a convenient, free way to prepare and file their federal return and sometimes their state return.
Here's how the IRS Free File works.
Just answer simple questions, watch the website do the math, and file your federal return for free. Free File from the IRS is for anyone with an adjusted gross income below $73,000. That's about 70% of Americans.
If you make more than $73,000, you can still use Free File to download PDF forms and schedules with built-in calculators that do all the math on your computer. Then you would print out the forms and mail them to the IRS.
An estimated 63 million American taxpayers could use prefilled forms to do their taxes in mere minutes, but a 2016 act to make "returnless filing" popular was fought vigorously by tax prep companies.
The savings of Free File are obvious. Price rundown of highly rated online services:
- H&R Block: $80 for federal and state
- IRS Free File: $0 federal, possibly $20 state
- Jackson Hewitt Online: $25 federal, $0 state
- TaxPayer Premium: $80 for federal and state
- TurboTax Deluxe: $78 for federal and state
Sometimes filing your state return is also free with Free File. In contrast, both H&R Block and TurboTax charge for a state return.
"Free state return!" is sometimes dangled by tax preparation sites as an enticement to sign up for a discounted service, but beware: You might fall into a sneaky upgrade trap. An hour into your prep, the discounted service tells you that in order to complete a necessary step, you must buy a higher level of service. Few users will want to throw away the hour they already spent and go somewhere else to do their taxes, and the sites know it.
With Free File, you know the federal return is free and the state return might also be free.
Even if the service you use via Free File would charge you for filing a state return, you can always file it yourself using the easy option your state probably already provides (43 states do). With your finished federal return in hand or on screen thanks to Free File, it would be quite easy to plug the necessary numbers into your state return.
For example, in California there's CalFile. Three other states offer the same kind of full-featured, free tax prep website: Alabama, New York, and Pennsylvania. Thirty-nine states either operate their own direct-file websites or partner with private companies to let residents file for free.
Why You Haven't Heard About IRS Free File
Few taxpayers know about Free File because the federal government doesn't have the marketing budget to get the word out. TurboTax and H&R Block, in contrast, run ads around the clock in tax season.
We wanted to mention IRS Free File here because it's a very useful service that you already pay for with your tax dollars. Check it out, and spread the word!Search Anyone