Electronic tax filing now free for all at IRS Web site

Wed Jan 19,11:58 AM ET Business - USATODAY.com

By 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, she says.

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 by hand.

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 (3.5 million).

The IRS said it expects to see that trend reverse this year.