5 tax tips for Free File users
Wednesday, February 08, 2023
Free File 2023 has been open for almost a month. Have you tried it out yet?
This partnership between Uncle Sam and the private tax software industry has been around since 2003. 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.
However, the program hasn't really caught on as much as the Internal Revenue Service had hoped. Some of the lack of Free File enthusiasm might be attributed to roadblocks the program has encountered in recent years.
Free File problems: Some participating software companies were caught redirecting tax filing searches to their non-Free-File versions. The offenders included the two biggest tax software companies, Intuit's TurboTax and H&R Block. Both have since dropped out of Free File, with H&R Block leaving in 2020, and TurboTax in 2022.
Even before that scandal, some members of Congress and consumer advocacy groups were skeptical of the government-software industry partnership. They want the IRS to take over the online program on its own.
A provision in the Inflation Reduction Act, the wide-ranging economic reform measure that became law last year, ordered the tax agency to conduct a study on implementing such an IRS-only no-cost online filing system. The IRS says it plans to release its findings in May.
But until such a revamping is accomplished (if ever), we're stuck with we have Free File. And the existing program, which this year includes offerings from seven tax software companies, still can help some taxpayers.
If you're one of the filers considering the current no-cost tax completion and e-filing option, here are five things to know about Free File.
1. Your income matters.
This is obvious, given that millions of us are, or soon will be, filing our annual income tax returns. Income matters even more when it comes to Free File.
Since the program is designed to help lower- and moderate-income taxpayers, it's available to those with adjusted gross income (AGI) for the 2022 tax year of $73,000 or less. Despite inflation, that threshold is the same as last year.
The good thing, though, is that you don't have to worry about sorting out whether you can Free File based on your filing status. The $73,000 limit applies regardless of whether you're a single, head-of-household, or married taxpayer.
And if you do exceed that income limit, there's the Fillable Forms option.
2. Fillable, but not guided, forms are available.
Now about those fillable forms mentioned in tip #1. These electronic tax forms, which you can find at the Fillable Forms site, are handy if your taxes aren't that complicated, you're comfortable doing your own taxes, and you made too much money to use Free File.
As the name indicates, the IRS makes available the most common tax forms that you can open on your computer once you've created an account. Then you enter your information onto the computerized forms, and file them electronically at no cost.
These fillable forms, however, don't walk you through your taxes like most tax software does.
And while the forms do the math on each form, the process doesn't automatically transfer the data from one form to another where it's required. That means, for example, you have to move your Schedule 1, 2, and/or A calculations to the appropriate places on your 1040 yourself.
Also note that unlike some of the official Free File software options, there are no fillable state forms available since this service is offered by Uncle Sam's tax agency.
IRS Publication 5274, a 25-page PDF users' guide to Fillable Forms, has more if you're interested in this method.
3. 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 Free File browse feature provides an overview of what the participating tax software companies offer, including any state returns and possible costs.
If your preferred Free File option doesn't include no-cost state return prep and e-filing, go to directly to your state's tax office website. Most offer their residents direct, no-cost e-filing of state returns.
Yes, going to a separate website and re-entering tax data is not as handy as doing both state and federal in one step, but it is free.
Remember, too, that regardless of whether you can do a combination Free File for federal and state filings, or do them separately, you'll likely need to complete your federal Form 1040 first. Most of the 42 states that require their residents to pay some form of income tax use the IRS entries as the starting point or key reference for filling out state returns.
4. You'll need some material/info to Free File.
Finally, while Free File is relatively easy, it's not totally hassle free. Pre-filing prep is still a requirement.
The IRS says before you begin using one of the online options, have on hand the following —
- Personal Information, including that copy of last year's tax return you dug out of your files to check your AGI for Free File eligibility. You'll also need valid Social Security numbers for yourself, your spouse, and any dependents. Free File also wants a valid email address, so the software option you choose can notify you that your return was accepted by IRS.
- Documentation of income, such as your W-2(s), assorted 1099s, and other assorted statements from, for example, 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, and Form 8962, Premium Tax Credit.
My post announcing the opening of this year's Free File has more (see the green box) on what you need to use the no-cost filing program.
5. Go to Free File through the IRS website.
Finally, if you decide Free File or its Fillable Forms version works for you, go to the options by first going to the IRS website, IRS.gov. Once on the IRS' main page, you should see the link to Free File, which I circled in the screen shot below.
You also can enter the words "Free File" in the search box at the top right corner of the IRS.gov home page.
Why go through the IRS? Because that will ensure that you get to the real website, instead of a fake Free File site created by crooks who'll use your information to steal your tax refund and your identity.
You also might find these items of interest:
- 10 reasons to file a tax return even if you don't have to
- Don't miss out on EITC, but note the 2022 tax return changes
- State relief recipients awaiting IRS decision on potential federal tax cost
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