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5 tax tips for Free File users

NOTE: This post was updated on Jan. 13, 2019, to reflect Free File changes for the 2019 tax-filing season.

Free File 2019 opened on Jan. 11. 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.

Tax efile key on computer keyboard

The Internal Revenue Service and the Free File Alliance say these participating software manufactures should meet the filing needs of 70 percent of the more than 150,000 million taxpayers expected to send in 2018 tax 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 2019 has opened weeks before the official start of the full tax-filing season, getting your Form 1040 to the IRS earlier won't speed up its processing. These early Free File returns will simply be placed in the IRS' processing queue. The tax agency won't start dealing with them until the full, official opening of the 2019 filing season on Monday, Jan. 28. Yes, even if the federal government still is in shutdown mode.

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 all these timelines will slip if the aforementioned government shutdown is still in place. 

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 are very handy if your taxes aren't that complicated or you're comfortable doing your own taxes.

You can go online, fill out the fillable 1040 and other common tax forms and schedules from your computer and e-file at no cost.

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

And while the fillable option 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. A free breeze.

There is, though, one other thing about Fillable Forms. These tax documents are not yet available. If things go as planned, you can access them on Jan. 28 when the full 2019 filing season opens.

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 many of us 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 2018 tax year was $66,000 or less. That's the same earnings limit on Free File eligibility as last tax season.

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.

If you can't file a Free File provide that includes your state return in the filing package, go directly to your state tax office. Many 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 all your income, such as W-2s, Social Security payments, unemployment benefits, investment income and if you run your own small business, all receipts pertaining to that enterprise. You'll also need documentation of any money you received in connection with rentals, real estate, royalties, partnerships, S corporations or trusts. All you gig workers out there, be sure you have your 1099-MISC or 1099-K forms. And yes, even refunds, credits or offset of state and local taxes typically show on Form 1099-G counts here.

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, Republican members of Congress and the White House have taken steps to weaken Obamacare, but it's still the law. In fact, the GOP's tax reform measure, the Tax Cuts and Jobs Act (TCJA), requires taxpayers to report coverage, qualify for an exemption or pay the individual shared responsibility payment for tax year 2018. So have the documents that verify your medical coverage ready when you get ready to Free File your 2018 return.

Yeah, even when tax filing if free, it's still not that easy.

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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