tax time

Time for my annual gripe.  I use tax preparation software, have used it for a long time.  I have two ways to file my taxes, efile and paper.  Paper filing costs the government (and all us taxpayers) a lot more money to process a return.  Efiling saves the government (us) money.  So what is the incentive to efile?  Well,  I can print the forms out on paper and mail them in to the government for the price of the paper, toner, and a few stamps: under $2 for state + federal.  Or I can pay the tax preparation software company $30 to efile my return.  This is in addition to the price of the software.   That is, I can pay extra for the privilege of saving my government money!  This makes me mad every year, no matter which way I do it.

Slightly more complicated note about the situation: For federal returns, the only way to efile is through a private company.  Individuals cannot directly efile their own taxes.  Private companies get to make money off our legal requirement to file tax returns.  Yee-haw.  There are firms that offer free efiling for lower income people: I don’t know whether or how these firms are compensated for free efilings they process.  I do know that none of them will also do your state return for free.  If you have the privilege of a professional income, you have to pay to efile your federal taxes, there is no free option except paper.   My state does offer free efiling for everyone on a web portal.  So if I’m willing to reenter all the information I have already entered into my tax software, I could save the $15 for the state return.  But, of course, I think my time is worth the $15, so I’m back to the choice between printing and paying.  I may look into a new tax software vendor next year to see if the situation is less insane for other companies, although there are time/labor costs involved in switching.

I don’t know why other people are not griping about this.

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Author: olderwoman

I'm a sociology professor but not only a sociology professor. It isn't hard to figure out my real name if you want to, but I keep it out of this blog because I don't want my name associated with it in a Google search. Although I never write anything in a public forum like a blog that I'd be ashamed to have associated with my name (and you shouldn't either!), it is illegal for me to use my position as a public employee to advance my religious or political views, and the pseudonym helps to preserve the distinction between my public and private identities. The pseudonym also helps to protect the people I may write about in describing public or semi-public events I've been involved with.

6 thoughts on “tax time”

  1. I’m not sure which program you are using, but I used Turbo-tax this year and didn’t have to pay extra to e-file. (This may depend in part on what sort of tax forms you have to fill out–they might charge you extra if you need significantly more than the basic 1040; I don’t know, I didn’t have to do it.)

  2. Short answer: This is a feature, not a bug! The Bush Administration is protecting you from the harm of having the IRS unfairly compete with private sector tax-preparation software providers. (No, I am not really kidding.)

    Ok, my experience is sapience14’s, which is that e-filing is included in the price of the software. Technically, I could avoid a lot of the price by re-entering info I’ve provided from past returns, but I accept the convenience charge associated with the “premium” service. That goes double for my Wisconsin return, where the state does have a pretty good free e-filing system.

    At one point, you could find someone who would file almost any federal return free under the IRS Free File Alliance program, though the actually free and convenient alternatives were (and I assume are) much broader for 1040EZ filers (i.e. low- to moderate-income taxpayers who do not itemize deductions). Again, theoretically the fees paid by people who can afford to pay for e-filing would subsidize free services for those who need it. But I think the beastly structure overall has slowed e-filing adoption under the theory that demand curves slope downwards.

  3. umm, don’t you just deduct the cost of submission and the cost of the software from the following years taxes?

  4. I’m with you big time on it being a real racket and not understanding why everyone just goes along with it. I jumped off the treadmill last year, preparing and e-filing completely free via taxact.com and my state (VA) website. Very painless all around, despite itemized deductions, schedule B,C, etc. They may close the free loopholes in the future but, for now at least, you don’t have to choose between paying and suffering.

    -Andy

  5. i’ve got another gripe — if you are lucky enough to get a fellowship as a graduate student, the money is counted as income but not actually reported to the IRS. Depending on where you are, you can elect for your university to voluntarily deduct state and federal taxes so that you don’t owe a big chunk all at once. This means, however, that you get a W-2 with a zero in the wage category — tax software can’t figure this out, so there is no way for you to e-file. I, of course, found this out after I had paid the 15 bucks for the software mainly so that I could e-file.

  6. Just to further my original gripe. I do my kids’ taxes too on the same software, but somehow paying for their returns too bugs me even more than paying for my own, partly because on a percentage basis the price is so much higher. My son has very little income but has to file a federal return and pay $10 in taxes because he is a dependent and his unearned income exceeds $300.* My daughter is a low income grad student who is owed refunds. I’m not willing to pay to file their returns. I’ve told each of them that they can copy the numbers I’ve generated for them into a free efile program (well two free programs for my daughter as state and federal are separate) or I can print their returns and they can file on paper. Guess which they are choosing. It annoys me somewhat that they are not public spirited enough to recopy the numbers and save the government money, but of course they think I’m nuts — they are rational actors who value their own time.

    *EDITS: Of course, it will cost us taxpayers a lot more than $10 to process his paper return. On other points: It is possible that my tax software gives one “free” federal efile in the price, but if this is true, I have to scramble around to find a rebate certificate to mail in along with my return code; it does not just happen automatically. Re deductions, this is true only if you itemize (which I do) and only if your miscellaneous expenses exceed 2% of your adjusted gross income or can be billed to schedule C self-employment income (which mine can be). My own view is that there ought to be an efile credit built into the rate structure: you just owe $20 or so less for each return if you efile. Why not bring the individual incentive into line with the collective costs? Oh, and more expensive software can handle the “no-W2” situation newsocprof mentions. But you don’t know that until after you pay!

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