If you make less than $60,000 a year, you don't have to pay for an accountant or online tax software.
The average American spends $273 a year on tax preparation, according to the NSA.
Not that one: the National Society of Accountants. But there’s a government agency concerned about how much you spend on tax prep — the IRS itself. The agency says 70 percent of Americans should be paying nothing.
The IRS has partnered with something called the Free File Alliance since 2003. It’s a nonprofit started by 14 major tax software companies, including H&R Block and Jackson Hewitt. If your annual household income for 2014 was $60,000 or less, you qualify to get your taxes done for free with at least one of those companies. They claim it’s saved consumers $1.3 billion over the past 12 years.
Naturally, there are some limits and drawbacks to the free-filing options. But these are legitimate businesses, even if some have fake-sounding names like 1040NOW.NET and Free1040TaxReturn.com. Here’s how it all works…
How does Free File software work?
If you’ve never done your taxes online, now’s a good time to start, because it’s…
- The safest way to file. There’s no mail for identity thieves to snag, and the industry uses secure websites.
- The fastest way to get a tax refund, direct deposited to your account. Paper returns require an IRS employee to review them, and with more people filing online, the government has fewer people doing it.
- A lot easier than doing the math and digging through IRS.gov forms. Turns out computers are good at numbers and remembering lots of things.
“Free File offers easy-to-use products that ask questions and you supply the answers,” the IRS says. “The software will find the right forms, find the right tax credits and deductions, and even do the math for you.”
Using an accountant provides a lot of the same benefits, and it’s possible they can find you better credits and deductions by asking more specific questions. But remember: They use software too, and they charge you a lot more for their time.
Picking a tax company
While there are 14 members of the Free File Alliance, some may not want to work with you. The best free tax service will depend on your income level, age, and where you live, because each has its own niche…
- Five have maximum incomes below $60,000. TurboTax has the lowest (unless you’re active-duty military) at $31,000.
- Two have minimum incomes: FileYourTaxes.com and OLT.com.
- Four exclude residents of several states: FreeTaxUSA, 1040NOW, Free1040, and ezTaxReturn
- Three have a minimum age of 17 or 18: TaxACT, FreeTaxUSA, and eSmartTax
- Nine have a maximum age. Jackson Hewitt’s is the lowest, at 49.
Fortunately, the IRS does a lot of the work of picking for you. Its site has a simple tool to help you narrow the selection with five easy questions. Alternatively, you can just look at the full list and read the bullets under each to see if you qualify.
Even if you only have one or two free options to pick from, you’ll still want to do a little comparison shopping to make sure FREE isn’t free*…
When free filing really isn’t
To protect your freebie status, make sure to check these details…
1. State tax return. If you live in one of 43 states that requires one, check how the site works. Some give the federal return free, but many charge for a state return — anywhere from $8 to $25.
2. Bells and whistles. Several sites will try to pry open your wallet with “value-added offers” like in-person or phone support. Some charge you to amend your return. You can also be charged to download copies of previous years’ returns, so save a digital and physical copy when you’re done filing.
3. Additional forms. These free offers are best for people with straightforward tax situations. If you have to file forms other than a 1040 (if you’re self-employed or have investments you make money from, for example) you may end up paying.
4. The right link. To qualify for any of the free tax offers, it’s important the company sees the IRS referred you. “To use Free File, you must start by going to www.IRS.gov/freefile,” according to the Free File Alliance itself. “By going directly to a company’s website and not through the IRS.gov Free File pages, you may be charged a fee.”
Free in-person tax help
If you’re reluctant to trust a computer, you may still be able to get your taxes done for free. There are two other IRS programs known as Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) that offer free tax preparation.
VITA is for people who make $53,000 a year or less, and prioritizes helping people with disabilities and people who speak limited English. TCE is for anyone, but specializes in dealing with questions about pensions and retirement.
Both programs are operated by volunteers — which means they may be understaffed or available only at inconvenient times. You get what you pay for. You can look up your nearest VITA or TCE location on the IRS website. Many are located at libraries and community centers, and most require appointments. Here’s a list of what you should bring.
Whatever option you pick, remember to file by April 15 — even if it’s just to request an extension.