By now, you’re probably well aware that you can Free File your federal taxes through the IRS Free File program. What hasn’t been discussed a lot is that which of the programs you should choose to do your federal taxes depends on what they charge for the state taxes where you live.
Basically, the IRS has teamed up with private tax software vendors to offer “free” tax return filing for individuals with Adjusted Gross Income of less than $52,000. I say “free” because there are a lot of stipulations, and though federal tax returns are free, you still have to pay for the state returns. If you live in a state with no income tax though, then this is most certainly a great deal. Just be careful how you go about it.
To Free File your tax return you must do so through the IRS’s website (if you go directly to the tax program’s site, you will be charged to file your federal tax return). You’ll note on this page that the IRS explains a little bit about the Free File process. When you click “start now!” from this page you will see a list of software companies and a brief description of their criteria for free filing. You then pick which software company you want to free file with. The IRS mentions on this page that some of the software companies offer free state tax filing, but it is pretty impossible to tell which ones.
H&R’s Tax Cut is one of the highest recommended and most reputable companies. But they are also the most expensive, at $24.95 for state tax returns. Tax Cut simply requires that your Adjusted Gross Income (AGI) be less than $52,000 and that you are less than 50 years of age, in order to free file.
Turbo Tax is the other big player. Turbo Tax requires that your AGI to be less than $28,500. If you qualify for the Earned Income Credit (EIC) or are active duty military, then AGI less than $52,000 qualifies you. I did notice that TurboTax offered free filing for the following “free file alliance states:” AL, AR, AZ, GA, ID, IA, KY, MA, MI, MN, MO, MS, MT, NY, ND, NC, OK, OR, RI, VT, WV. They only charge $9.95 for states outside of this alliance. I did not see any other obvious free state filing offerings with the other companies.
I have heard very good things about TaxAct which is only $12.95 for state tax filing. $52,000 is the AGI threshold, but you have to be between 20 and 57 years of age. TaxEngine, TaxSlayer, and CompleteTax are also generally recommended for ease of use and accuracy. Their state tax filings in general cost $10. However, there are a lot more age and income restrictions with these.
It is probably best to peruse the website of the software company you choose and read all of the fine print about their free file program. Once you are certain which company you will use, and that you qualify under their rules, go back to the IRS free file site and select the company from there to prepare and submit your tax return.
By taking a bit of time to research the cost of filing your state tax return under Free File you will make sure you not only are able to file your federal taxes for free, but also pay the least amount for your state tax filing.
In other news, the IRS has just announced that three of the free file software companies are also offering free filing of Form 1040EZ-T. This is the form you can file to get your federal telephone excise tax refund, when you don’t need to file a tax return otherwise. After a lot of digging for which three software companies offer the free 1040EZ-T, all I could find was Turbo Tax. If you generally are not required to file a tax return, but you had long distance phone service between February 28, 2003, and August 1, 2006, you can claim a Federal refund of $30 – $60. The amount depends on how many exemptions you would be allowed to claim in 2006.
Of course you can always fill out your tax return the old fashioned way, with paper and pen. But if you qualify for free file, you can e-file your tax return (transmit it electronically) and get all of the benefits of tax software, which does the hard work and calculations for you. Plus, if you e-file, you should get your refund faster.