Americans spend billions annually on filing tax returns, although they could do it for free: which services are better to use

The proportion of people who have taken advantage of the free tax filing program has increased in recent years. Unfortunately, the number of those who do not use these free services has also increased, resulting in billions of dollars in unnecessary spending. Syracuse.

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For about 20 years, the IRS has partnered with tax software providers known as the Free File Alliance to provide eligible income taxpayers with free online registration. This year, that income is $73: anyone with an adjusted gross income at or below that level in tax year 000 can apply for free. The income ceiling is adjusted annually to ensure that the lowest income 2022% of taxpayers can file online for free using tax software.

One problem with this noble plan is that relatively few use it.

Data for 2021 shows that 101 million eligible users have not exercised this right.

An analysis of FY 2021 IRS data — the most recent available — shows that while 70% of taxpayers qualify for the free program, only 3,1% used it. This is a marginal improvement from 2,8% a year earlier.

A 2022 online NerdWallet survey by The Harris Poll found that those who paid to file their federal returns typically paid more than $150. At this level, 2021 applicants could overpay up to $15,2 billion.

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Even a more conservative estimate of spending $40 on income — close to what many well-known online tax services advertise — would result in an overspending of about $4 billion.

These taxpayers are the lowest paid in the country. As tax filing has shifted from paper-based to online software over the past few decades, the IRS has tried to provide these taxpayers with access to useful software that would allow them to file more easily and cost-effectively.

Lack of awareness

The Inspector General of the Treasury's 2020 tax administration report found that 30% of taxpayers who paid to file a return were unaware of the Free File program.

Software provided by Free File Alliance companies is subject to strict rules. But many tax software vendors offer free versions of their own software outside of the Alliance that are not subject to the same rules.

A Google search for “free tax file” shows that the first three to five results are advertisements. Providers like TurboTax and H&R Block offer their own "free" tax services, but have been criticized for misleading consumers about costly upgrades. In fact, ProPublica's investigation into this practice led to the Free File Alliance tightening its standards in 2020.

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H&R Block and Intuit's TurboTax subsequently left Alliance in 2020 and 2021, respectively.

Tips for taxpayers on how to file for free

1. Find out if you qualify. For 2022 tax returns filed in 2023, you are eligible for a free filing if your adjusted gross income is $73 or less. And if you are married and apply jointly, this limit applies to your combined income. Not sure? You can evaluate your AGI or start a free process: the program will notify you in advance if you do not meet the requirements.

2. Access tax software through IRS.gov. Instead of using a search engine, make sure you get to the real free files page by opening the submission options at official website free IRS files. Participating tax companies may have additional restrictions - such as age and location - but the search tool will narrow down your options by asking a few questions.

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3. Be careful with the options offered. Non-Free File Alliance vendors offer add-ons such as audit protection or personalized advice for an additional fee. Know what you're signing up for and get help if you're unsure.

4. Get help. In addition to the help provided by tax software companies, you can seek support directly from the IRS. The agency has Taxpayer Assistance Centers throughout the country that assist with filing and tax issues. People with additional needs, such as the elderly or people with disabilities, or those who do not speak English well, may qualify to participate in program Voluntary Income Tax Assistance or VITA.

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