Tax Analysts Blog

Why Isn't E-Filing Free for Everyone?

Posted on Apr 14, 2010

April 15th is finally here. The day millions of procrastinating Americans assemble their federal income tax returns. In the old days this ritual involved rushing to the post office to make sure your envelope was postmarked before the midnight filing deadline. But an increasing number of taxpayers never worry about postmarks, envelopes, or postage stamps. This is the age of e-filing.

I filed my federal and state tax returns months ago. In fact I've already spent the refunds. I filed my state return online, as I've done for the last couple of years. It was easy, convenient and free. Plus you have the comfort of knowing there will be no computational errors. The program does all the math for you. You just need to make sure you fill in the correct numbers. It's idiot-proof. That's how filing taxes should be.

The state in which I live, Virginia, embraces the free-file concept. Nobody in Virginia needs to pay to file their state tax return online. The state government provides an excellent e-file service to all taxpayers. Lawmakers in Richmond decided this is a public service, and they're 100% correct. If Virginia is going to tax our income, the least they can do is make the process as easy as possible ... and free of charge.

That's not only good news for Virginians, it's also a smart idea for the state. Every time somebody in Virginia files online, that's one less paper return the state has to manually convert to a digital format. All tax records exist in digital form these days, it's just a matter of who imports the data: taxpayers (when they e-file), or public-sector employees (when paper returns are converted to digital files).

How do I file my federal income tax returns? Glad you asked. I sit down at the kitchen table with a sharp pencil and a good eraser. Then I get out my calculator and complete the darn thing by hand. That includes the basic Form 1040, each of the necessary schedules, and the intimidating AMT worksheet. I find the experience moderately entertaining; it's like a suduko puzzle except the consequences are real. (Admittedly I'm something of a tax geek.)

Then I mail in the paper return, knowing that some government employee has the task of digital conversion. That wastes the government's time and resources. Multiply the effort millions of times over and we're talking a serious revenue drain on the IRS. No small cost for an agency whose budget is already stretched thin.

So why do I e-file my state return but not my federal return? Simple: The former is free of charge, the latter is not.

You see, filing a paper version of Form 1040 is a quiet form of protest. The IRS operates the hypocritically named Free-File program. It's free for people whose taxable income doesn't exceed a prescribed threshold, meaning it's not free for the rest of us. Once it discovers that you make too much money, the IRS free-file website kicks you to one of its commercial e-file affiliates. (Do you smell a scam?)

I unequivocally refuse to pay money to e-file. Not even one cent.

The IRS website ought to have its own self-generated version of TurboTax that's free to the American public at large, regardless of income level. This should be a public service. The people over at Intuit (developers of TurboTax) would be displeased, but who cares? Who decided the entire country should be slaves to their business model? Their industry strikes me as rather parasitic; it wouldn't exist if more rational minds determined our tax laws.

I admit we're not talking a whole lot of money here. The fee I would have been charged to e-file my federal tax return is nominal. I spent three times that amount on lunch today. Money is not the point; it's the principle. Taxes are, by definition, an economic burden. But the process of filing your tax return shouldn't represent an additional cost.

Virginia and other states get it right. Why can't the feds?

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