If you made $60,000 last year or less, you may qualify for special free tax software from well-known brands. And even if you made more than $60,000 last year, you still can get access to free fill-in-the-blank forms online.
The IRS and the Free File Alliance have teamed up to launch Free File.
The Free File Alliance is a consortium of 14 tax software companies. The companies have voluntarily made special versions of their products available for free. Products include:
- 1040.com Free File Edition
- eSmartTax By Liberty Tax Service
- FreeTaxUSA IRS Free File Edition
- H&R Block’s Free File
- Jackson Hewitt Tax Service
- Online Taxes at OLT.com
- TaxACT Free File Edition
- Tax Simple
- TurboTax All Free
Who is Eligible for Free Tax Software?
The IRS says that 100 million (70 percent) of taxpayers are eligible to use the Free File software.
Tim Hugo, executive director of the Free File Alliance, said, “Tax time can be stressful, but Free File makes step-by-step help accessible to everyone making $60,000 or less.”
But it’s not quite that simple.
There are four wrinkles that affect who is eligible for what.
(1) You must wade through a patchwork of income restrictions.
First, look at your income during 2014.
If you earned $60,000 or less during 2014, you may be eligible to choose from among the 14 free tax software products.
With some software providers, income levels must be much lower than $60,000 to qualify for the free version. For example, the cut-off for eligibility with TaxACT is $52,000. For 1040.com, the cut-off is $33,000 to qualify.
Note: the income levels refer to “adjusted gross income” or AGI. For many taxpayers, your AGI will be the same as your total W-2 income. But for some taxpayers, your AGI may be lower than your total income. The IRS suggests referring to your adjusted gross income on your 2013 tax return. If your income didn’t change much from year to year, it may give you a rough idea of your AGI for 2014.
(2) Providers may impose additional conditions.
Each tax software company sets its own restrictions on who is eligible to use its Free File version.
In some cases, to get the free software you must be located in certain states.
Or you may have to be a certain age.
In other cases you may have to qualify for the Earned Income Credit in order to use the free software. The Earned Income Credit or EIC has its own set of income restrictions. But millions of taxpayers, including small business owners and the self-employed, qualify for the EIC. (Go to this page on the IRS website to see income levels for the Earned Income Credit.)
(3) Business returns cost extra.
The free tax software under this program is generally meant for consumer (i.e., wage earner) returns.
Things are a bit more complicated for those of us who file a business return, such as a Schedule C. If you file a return as a self-employed business owner or an incorporated or unincorporated small business, you will probably have to pay a fee.
For instance, the Jackson Hewitt offer is free for qualifying consumer returns. But Jackson Hewitt charges $49.95 for a self-employed business return / unincorporated small business return.
(4) State returns may cost extra.
Then there’s the issue of state tax returns. Some providers charge an additional fee for filing state tax returns. So while it’s free for the federal return, it may cost you a bit — typically under $20 — for a state return.
But not always.
With some providers, the state return also may be free.
Take. for example, TaxSlayer (don’t you love the name!). TaxSlayer includes a free state return if you are located in: Arkansas, Arizona, Georgia, Idaho, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Mississippi, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Virginia, Vermont, West Virginia or DC. If you are in one of the other states with an income tax, however, you’d have to pay $12.95 for an accompanying state return through TaxSlayer.
Remember, seven states have no state income tax at all (Alaska, Florida, Nevada, South Dakota, Texas, Wyoming and Washington). In those seven states you need not file any state return.
Above $60,000: You Get Fillable IRS Forms
And what about those who earned more than $60,000 in 2014? For you there’s a different program.
Those who earned above $60,000 are eligible for something called “Free File Fillable Forms.” The IRS says this option is best for people comfortable preparing their own tax return.
With this program, you are essentially completing your own tax return. You’re just doing it online using fill-in-the-blank tax forms, instead of using pen and paper.
Fillable forms are an electronic version of the IRS paper forms. You fill in the blanks of these forms online. Then you file electronically using the IRS’s e-file program (there’s an integrated “E-File Now” button you click at the end).
This option doesn’t give you as much help as tax software. It performs some calculations, but not all. You must do some calculations manually.
You must wade through the IRS instructions, which can be challenging to understand.
There’s a comprehensive list of federal forms available. The good news is that most of the forms that small businesses use, such as Schedule C and Schedule SE, are included. However, it does not cover state tax forms – you’re on your own for those.
Despite all the restrictions, the Free File software option is a good deal for consumers who (a) prefer to use software for their returns, or (b) can’t afford to hire a tax preparer.
Just do your research thoroughly. Go here to see a list of restrictions, by software provider.
And if you don’t want the hassle of sorting out the options, the IRS.gov/FreeFile website has an interactive selection tool. It will walk you through the process of determining which software you qualify for. Then it directs you to the software providers’ websites for the free version of the software.
Adds John A. Koskinen, IRS Commissioner, “You don’t have to be an expert on taxes or the new health care law. Free File software can help walk you through the rules and help you get it right.”
Image: IRS / FreeFile