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Have you heard of e-file but aren’t sure how it works? Bankrate explains.

What is e-file?

E-file is an electronic filing system that allows individuals and businesses to file their income tax returns over the internet. In 2016, the Internal Revenue Service (IRS) reported that more than 123 million tax returns were filed online for tax year 2015.

Deeper definition

Taxpayers can create physical or digital documents to securely submit to the IRS via e-file. Internet access, standard web browser software, and a registration are typically required to transmit forms. Accountants and other tax preparers can apply to become an authorized e-file provider.

E-file electronic filing is typically available to taxpayers 24/7. Unlike mailing paper returns, e-filing allows tax agencies to immediately issue a refund, and inform taxpayers that the forms were properly completed and that taxes have been received. When taxpayers file tax returns online, they are immediately notified about errors or missing data.

Taxpayers would expect agencies like the IRS to secure their systems, but recent hacking attacks on the IRS website reveal how vulnerable the system can be. In 2016, the IRS reported an attack that successfully exposed more than 700,000 e-file personal identification numbers (PINs). The IRS immediately notified the taxpayers affected by the breach and put additional protections in place to prevent identity theft.

To safeguard their tax returns, taxpayers are advised to take precautionary measures. If they receive email claiming to be from the IRS, it is recommended that they contact the agency directly for verification.

Need help working out your tax returns? Check out Bankrates many tax calculators.

E-file example

Anastasia has gathered her tax information and purchased a subscription to an online tax preparation service. She is pleased to see that the service utilizes a question-and-answer interface that makes filling out the forms very easy.

After completing her tax return, she electronically signs her documents and the system submits it to the IRS e-file system automatically. The IRS automatically checks Anastasia’s return for mistakes, finds a minor glitch with some numbers, and sends her return back to her. She fixes the problem and sends it right back to the IRS, preventing a simple mistake from holding up her refund.

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