New free filing option for more filers

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If you’ve never filed your tax return electronically, then 2009 might be the year to get with the e-program that kicks off on Jan. 16.

Not only will 20 private tax preparation software companies be providing their services via the Free File program, but the IRS itself is dipping its toe into the direct tax-filing water.

With the traditional Free File method, taxpayers whose adjusted gross income in 2008 was $56,000 or less can sign onto the IRS site, pick a vendor, prepare their returns and then file them for free.

New this year, taxpayers can choose to use online “fillable” forms and then send those directly to the IRS, also at no cost.

There is no software associated with the new fillable forms, which are electronic reproductions of commonly used IRS paper forms, so you must know what to type into the document that appears on your computer screen. However, this option is available to any filer, regardless of income.

E-filing advantages

“Particularly this year with the economic situation, many taxpayers will be focused on getting their refunds as quickly as possible,” says David Williams, IRS Electronic Tax Administration Director. “By e-filing, they could get that refund in as little as eight to 10 days. If it’s a mailed paper form, it could be four to six weeks.”

That quick turnaround time is e-filing’s major attraction. Last year, says Williams, 80 percent of returns produced refunds, with the refund amount averaging $2,429. Getting such a large refund is “not necessarily the best financial bargain,” says Williams, “but people are very, very happy to get those refunds, so most of our focus in filing season is to get those refunds out as quickly as possible.”

E-file and Free File 2009 basics
  • The IRS will begin accepting e-filed returns on Jan. 16.
  • The 2009 Free File program also begins Jan. 16.
  • To use Free File this year, your 2008 adjusted gross income must be $56,000 or less.
  • The income cut-off applies regardless of your filing status.
  • 20 tax software companies are part of Free File 2009.
  • Three companies are offering Free File products in Spanish.
  • You can e-file your return at any time and schedule any payment of taxes due for a later date, up to the April 15 deadline.
  • Access Free File only by going to the IRS Web site,, and clicking on the Free File icon.

Those e-filing advantages, says Williams, are why last year the IRS received 86 million returns, or nearly 60 percent of all filings, electronically. That was an increase over 2007 figures, although Williams acknowledged that the figure likely was inflated because of the additional filings submitted in order to receive an economic stimulus payment.

“We’re hoping to keep momentum for this filing year,” he says. “We think we have the right filing formula for doing that.”

Free File for some

Although there is an income eligibility limit of $56,000 or less, Williams says that amount still allows around 100 million filers, or 70 percent of the taxpaying population, to use one of the 20 tax software packages that will be part of this year’s Free File program.

The Free File software versions are similar to the products that the software companies offer for sale. Most use an interview-based format so you don’t have to know all the intricacies, tax changes, forms and instructions of the filing process. You answer the question and the software does the rest, including correcting basic tax errors.

“We’ve ask the software companies to support a set of core forms, ones that are most likely to be used by folks who qualify for Free File,” says Williams.

The IRS also has once again asked the participating companies to not do something. “There are absolutely no ancillary financial products that can be marketed through the Free File program,” says Williams. The IRS put its foot down in this regard after complaints from consumer groups that some Free File vendors were “up-selling” refund anticipation loans and similar potentially costly financial programs to taxpayers who signed on primarily to complete and file their taxes for free.

Fillable forms for all

If you don’t qualify for Free File because you made too much money last year, you still can file for free using the new fillable form option.

It’s open to anyone regardless of income, but it does have some limitations. There is no interview based filing program, no assistance that’s typically associated with tax software. “It’s simply an electronic version of forms people have used for millennia,” says Williams. “It will do the math for you, but you have to have some basic knowledge of your filing situation.”

Once you’ve completed the forms at your computer, you then press e-file and the tax documents will be sent electronically to the IRS at no charge.

Commercial providers go free, too

Of course, that’s not such a problem this filing season since the two major tax software programs, Intuit’s TurboTax and H&R Block’s TaxCut, this year are offering e-filing at no extra charge to customers who buy the software packages off the shelf. Such an option has been provided by 2nd Story’s TaxACT for years, as well as with the online version of many software packages.

Even with this price break, you still need to shop around to make sure that the overall cost fits your budget and that the software package provides any other filing options you need, such as state returns. But the no-fee e-filing feature of the commercial products should help boost the electronic tax stats even higher.

Williams cites the competitive nature of tax software as a likely reason behind the decision to ax the separate e-filing fee, which he calls a “real thorn in the side of people, a real barrier to electronic filing.” Many taxpayers have balked at the extra charge, which could run as high as $20, when they could mail their paper returns for literal pennies.

“The marketplace and landscape is changing,” Williams says. “You have two big companies and a variety of smaller companies and that competitive pressure is driving out things like separate fees.”

Are fillable forms the future?

Will the private tax software sector now have to worry about additional competition from Uncle Sam via fillable forms? Probably not.

“We don’t think most people will use fillable forms,” says Williams. “Evidence we have from data collected from surveys and analysis doesn’t seem to indicate that many people will use it.”

Intuit, maker of the market-leading TurboTax, is taking the new government free filing option in stride. “Intuit fully supports making a free, simple forms utility available through the Free File Alliance on,” says Intuit spokeswoman Julie Miller. “The addition of electronic, fileable forms that anyone can use, especially manual filers, supports the IRS’ goal to increase e-filing.”

The IRS does hope, however, that the option this year will provide the agency with more information about e-filing habits and how to get electronic tax participation to 100 percent. “We’re trying to see how much each add-on will prompt more filers,” says Williams. “Fillable forms will help in this data collection.”

That information could come in handy when dealing with those members of Congress who in recent years called upon the IRS to create its own online filing portal to allow all taxpayers to submit returns at no cost. The IRS is not as enthusiastic about the idea.

“It’s unclear to me at this point that there is a need for the government to do this if we can leverage the expertise of the private sector to deliver the fastest and best process for everybody,” says Williams.