The majority of individual taxpayers in the U.S. are eligible to file their taxes online for free, yet many may be unaware or confused by how to do so.
The tax industry and the IRS have played a part in the problem. Together they run the IRS Free File system, which about 70% of taxpayers are eligible for but only a sliver use. It was designed to help low- and middle-income taxpayers find a reliable program to file at no cost and boost online filings. However, the IRS has long faced criticism for its failure to promote and support the program. And recent media reports uncovered efforts by the tax software preparation industry to misguide users of Free File and nudge them into paid products.
Subsequently, improvements have been made and Free File should be easier to use in 2020. But, with tax season getting into full gear, users should know the details of the service and the alternatives.
What is free file?
The IRS Free File program allows taxpayers whose adjusted gross income is $69,000 or less to file for free. Tax software prep companies administer Free File via a partnership with the IRS. This year, taxpayers have their choice of 10 providers, including well-known names such as TurboTax, H&R Block and TaxSlayer.
Free File has been available since 2003; but while roughly 70% of taxpayers are eligible, only about 2% use the program, according to the National Taxpayer Advocate's Office.
Why the limited appeal?
Critics say the program is confusing and difficult to use. The process taxpayers must follow is "obscure and complex," according to a report released earlier this month by the Treasury Inspector General for Tax Administration.
The program is also poorly promoted. The IRS has not allocated any money to advertise Free File since 2014, although the agency does promote it on its website, social media and in press releases. For their part, some companies say they promote the program. TurboTax said increased advertising and other efforts boosted Free File usage last year.
The Taxpayer Advocate, which represents the taxpayer's voice within the IRS, has been critical of the IRS' management of the program, saying it fails "to promote the best interest of taxpayers," noting the low usage and confusion among taxpayers.
Additionally, critics say taxpayers may find themselves confused between the Free File system and the free or low-cost versions offered by the tax prep companies themselves.
Last year, the nonprofit news organization ProPublica found that some of the companies added code to their websites that hid their Free File programs from search engines and diverted users to paid products. Outside investigations confirmed that at least five companies did have coding that prevented users from getting to the proper page. The companies cited in the reports have denied any wrongdoing.
While the companies' actions didn't violate their agreement with the IRS, the agency has barred the companies from hiding their free products, among other changes to their agreement.
The IRS and the Free File Alliance, a coalition of tax prep companies that work in the partnership, say they are committed to making future improvements to the program.
The cost to file online with a tax software preparation company varies depending on the complexity of someone's tax situation, if they are filing state returns as well, or if they need professional assistance. It can range from around $30 to well over $100.
What should I do?
First and foremost, know this: The only way to access Free File is through the IRS website at IRS.gov/freefile.
Changes have been made to the internet search rules but for good reason. Last year, an estimated 14 million people who were eligible for Free File ended up paying to have their taxes prepared and filed, according to the Treasury Inspector General's report.
By going to the IRS site, taxpayers can browse all the offers or use a tool to help them find the right product. Each program partner has different eligibility standards, but the IRS assures taxpayers that if their adjusted gross income was $69,000 or less, they will find at least one free product to use.
Taxpayers should not be charged any fees if they qualify, other than potential state tax preparation fees. Some programs offer free state filing as well.
Free File partner company websites are also prohibited from pitching and selling additional products to users, including offers of refund anticipation loans, checks or other such products.
However, not everyone qualifies for Free File. So, if you've input all your information and find you do not meet the criteria, you may be pointed toward a paid service to complete your taxes.
Not sure if you've got the real deal? The IRS also now requires that each company name their Free File service the same way. It should appear as IRS Free File Program delivered by (Company Name).
Do I have to use it?
There are plenty of other alternatives for filing at no cost.
Taxpayers whose income is over $69,000 can use the Free Fillable Forms, which is an electronic version of IRS paper forms.
These forms do the math for the taxpayer, but there are limited directions so the user must be comfortable completing their taxes independently. Paper forms, while not a popular option, are completely free as well.
The tax software providers offer their own options and millions of people use these with success. However -- unlike Free File -- there may be offers for add-on services or upgrades throughout the process that come at a cost. The branded free file options are typically best suited for people with simple tax situations.
The Volunteer Income Tax Assistance Program and Tax Counseling for the Elderly programs also both offer free tax filing assistance through volunteer-run programs nationwide. VITA offers free tax help to moderate and low-income individuals, as well as people with disabilities or taxpayers with limited English skills. TCE focuses on helping taxpayers who are 60 years or older.
To find a VITA or TCE site, check the IRS website. The AARP Foundation runs many of the TCE sites and has information on its website as well.
Members of the military can use Military OneSource, a Department of Defense funded service that provides free online filing services through MilTax. MilTax includes access to tax prep software and support from tax consultants who can help with the unique conditions facing those in the military, including deployment, combat pay and multistate filings.