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5 tax tips for Free File users

NOTE: This post was updated on Thursday, Jan. 25, 2018, for the 2018 tax season.

Free File 2018 has been open for almost two weeks. Have you tried it out yet?

The partnership between Uncle Sam and the private tax software industry has been around since 2003. This year, a dozen companies are offering their services to eligible taxpayers.

Efiling tax return computer key

The Internal Revenue Service and the Free File Alliance say these participating software manufactures should meet the filing needs of 70 percent of the around 153,000 million taxpayers expected to send in 2016 returns this year.

Does free tax preparation and e-filing appeal to you? Check it out.

But first check out these five things you should know about Free File.

1. You won't get your refund any quicker.
Even though Free File has been accepting returns since Friday, Jan. 12, these 1040s (and 1040As and 1040EZs) have simply been placed in the IRS' processing queue. The tax agency won't start dealing with them until the full, official opening of the 2018 filing season on Monday, Jan. 29.

And the online program's Free Fillable Forms isn't available until next week's full season start.

Even more frustrating for some taxpayers is that the IRS is required by law to hold certain returns until mid-February. If you claim the Earned Income Tax Credit (EITC) or additional child tax credit and get a refund, then the IRS can't send you your tax cash until at least Feb. 15.

It gets worse. In reality, given IRS processing capabilities and possible normal delays at your bank if you're getting your refund as a direct deposit, it could be the end of February before you get your refund.

And if Congress can't meet its self-imposed Feb. 8 deadline to fund the federal government, we could have another shutdown of Uncle Sam's services, including issuance of refunds. 

So if you thought using Free File would help you circumvent processing and/or tax refund delays, think again.

2. Fillable, but not guided.
Now about those fillable forms mentioned in tip #1. These electronic tax forms, which you can find at the Fillable Forms site starting at 12 p.m. (aka noon) Eastern Time on Jan. 29, are very handy if your taxes aren't that complicated or you're comfortable doing your own taxes.

The IRS will make available next week the most common tax forms available for you to open on your computer, enter your information and then e-file at no cost.

But the fillable forms don't walk you through your taxes like most tax software does.

And while it does do math on each from, it doesn't automatically transfer that data to other forms. That means, for example, you have to move your Schedule A calculations to the appropriate places on your 1040 yourself.

Also note that unlike some of the official Free File options, there are no fillable state forms available since this service is offered by Uncle Sam's tax agency.

But if you're fine doing your federal tax return on paper, you should find using the Fillable Forms counterparts online a breeze.

Once you enter all your tax info onto the computer-friendly forms, you then can e-file your return at no cost.

Why would you do Fillable Forms instead of using Free File proper? The answer is in Free File tip #3.

3. Your income matters.
This is obvious, given that we are (or soon will be) filing our income tax returns. But it matters more when it comes to Free File.

The IRS and Free File Alliance want to get as many people as possible using their online tax prep and e-filing program. In fact, the tax agency is a fan of tax software in general. When people use the programs, they tend to make fewer mistakes and the method makes it easier for the IRS to process the computer prepared and e-filed returns.

But Free File's original mandate was to make electronic tax help available to taxpayers who might not be able to pay a tax professional or even afford tax software.

In keeping with that goal, there is an income limit for Free File uses. It's usually bumped up a bit each year to account for inflation.

For this filing season, you can use Free File if your adjusted gross income (AGI) for the 2017 tax year was $66,000 or less. That's $2,000 more than the prior tax year's threshold.

The good thing is that you don't have to worry about sorting out a threshold based on your filing status. The $66,000 limit applies regardless of whether you're a single, head of household or married taxpayer.

And if you do exceed that income limit, this is where Fillable Forms (tip #2) comes into play.

4. Your state return might not be free.
Some of the participating tax software companies once again throw in free state return preparation and e-filing. But not all.

And even those who do might set other eligibility requirements for state returns.

If getting your state taxes filed for free is important to you, carefully check out the Free File options for each provider before making your choice. The IRS' online search tool can help you filter your filing needs to find the Free File provider that works best for your tax situation, like getting your state returns done at the same time.

The IRS says that the following states provide a free state tax return in partnership with private software companies via the Free File Alliance: Arkansas, Arizona, the District of Columbia, Georgia, Iowa, Idaho, Indiana, Kentucky, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, North Carolina, North Dakota, New York, Oregon, Rhode Island, South Carolina, Virginia, Vermont and West Virginia.

If your state isn't in that list, go directly to your state tax office. Most offer their residents direct, no-cost e-filing of state returns. Yes, it's not as handy as doing state and federal in essentially one step, but it is free.

And regardless of whether you opt to use Free File or a state e-filing option, you'll likely need to complete your federal filing first. Most of the 43 states that require their residents to pay some form of income tax use the federal data as the starting point or a key reference for filling out state returns.

5. You'll need some material/info to Free File.
Finally, while Free File is easy, it's not totally hassle free. You still need documentation to complete your tax return using the online system.

In addition to the standard stuff like a W-2 or assorted 1099s, to use Free File you'll also need:

Personal Information, including that copy of last year's tax return you dug out of your files to check your AGI. You're going to need verify your identity to e-file and your 2016 AGI is one way to do that. You'll also need valid Social Security numbers for yourself, your spouse and any dependents.

Receipts confirming other income, such as Social Security payments, unemployment benefits, investment income and if you run your own small business, all receipts pertaining to that enterprise.

Affordable Care Act compliance documents, such as Form 1095A, Health Insurance Marketplace Statement; Form 8962, Premium Tax Credit; and Form 8965, Health Coverage Exemption and ECN. Yes, the new Republican House and Senate have taken steps to repeal Obamacare, but it was in effect last year, so you need to comply with its requirements — which the IRS says it will enforce — when filing your 2017 return.

You can check out the rest of the items you'll need to use Free File this year at the IRS' special What You Need to Get Started web page or the ol' blog's tax return filing checklist.

Will you use Free File or Fillable Forms this year? Or do you prefer buying your own software or heading to a tax professional's office for filing help?

Whatever method your choose, it's that time. So if you haven't already started assessing your tax-filing options, do so now.

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