How the IRS E-file Process Works

Free File is a program allowing any taxpayer with an adjusted gross income of $58,000 or less to electronically send his or her tax return to the IRS for free.
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Tax season. For some, it brings to mind images of late nights tapping on the calculator papers scattered all over the dining room table. Or the last-minute rush to find the correct forms and the frustration of trying to calculate expenses and deductions. And finally, after double- and triple-checking all your work, signing all the papers, and dropping the whole shebang in the mail, you wait weeks and weeks for that much-needed return to come back. Ah, the bad old days, right?

Today that process is a whole lot easier, thanks to technology. Gone are the days of complicated paperwork, math, and waiting forever for a refund. You can use your computer to electronically file (e-file) your taxes with the IRS, and the entire process is streamlined, efficient, and less prone to errors. Plus, your refund arrives much more quickly; it can be directly deposited to your bank account if you choose. Another perk is that you can track your refund.

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In 2013, over 43 million people directly filed their taxes via e-file, over 70 million tax professionals used e-filed taxes for their clients too [source: Bell]. Here's how it works.

What Is E-filing?

E-filing typically comes in two waves every tax season. First are the early filers, who want their refund as soon as possible. Next are the last-minute filers, who usually owe money and want to wait until the last minute to press that "send" button. For both, e-filing makes things easier.

If you have access to a computer and the Internet, you can file your taxes electronically. The IRS allows you to file Form 1040, Form 1040A, Form 1040EZ or Form 1040-SS (PR) via e-file. You fill out your tax form on a computer, and send the information to the IRS. The transmission process is safe and encrypted, so you don't have to worry about your personal information being compromised or stolen.

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Many companies offer software to walk you through the e-file process. Some are free and some are available for purchase. The IRS tests and approves several retail software programs, so you should do some comparisons and research to find the one that's right for you. Certain taxpayers are eligible for a free service called Free File, which we'll talk about later. The IRS doesn't charge a fee for e-filing, but the software you use may charge a fee, so find that out up front.

E-filing software is specifically written to accurately calculate the math on tax forms and ask you the right questions to ensure you fill out your forms correctly. Everything is right there for you -- your expenses and deductions and all the current information you need. The software is automatically updated with the most recent tax forms and information straight from the IRS. Your computer does the calculating for you, and you can even save the form partway through, walk away, and finish it up later.

After e-filing, the IRS typically issues a refund within three weeks of your filing date. If you owe money, you can pay electronically and receive immediate notification when your payment is received. Or you can go the usual route and mail a check or money order. Sound good? Find out next how to do it.

How to E-file Your Taxes

The process of e-filing your taxes is pretty simple. You need a computer with an Internet connection, tax filing software, and all the normal paperwork you'd typically use to file your taxes. You can purchase your e-filing software at your local software store, or buy it directly online and download it to your computer. With some programs, you don't even need to download a program and clutter up your hard drive -- you can fill out your tax return directly online through a secure server. However whether you want to do your taxes completely online or on your hard drive to send to the IRS later is up to your personal comfort level.

The IRS allows you to prepare and file up to five tax returns via e-file, so you can also do taxes for your family members. Here's the basic process:

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  • Gather up your tax paperwork (tax statements from your employer, Social Security numbers, receipts, etc.)
  • Open up your software.
  • Answer the questions regarding your tax statements, and miscellaneous information requested of you by the software
  • Electronically sign your return.
  • Print out your return for your records.
  • Follow the directions to submit your return.

Once you've completed your tax return and hit "Send," the software converts the return to a format that meets IRS specifications. The IRS goes over your return and then notifies the software company, who then in turn notifies you, whether or not your return was filled out correctly and has been accepted or rejected. Not to worry, though -- about 89 percent of e-filed returns are accepted the first time [source: IRS].

The IRS also offers a program called Free File, a free online e-file program for taxpayers who meet certain eligibility requirements. Find out if you're one of them next.

What Is Free File?

The IRS Free File program was formed from a 2001 task force to improve government-to-citizen capabilities [source: IRS]. Free File offers free, secure online tax preparation and filing to eligible taxpayers. The IRS itself doesn't give you the tax software. Rather, they partner with private companies who have a proven track record of providing consistent and secure tax services. The companies that partner with Free File, unlike some other companies offering free tax filing software, are guaranteed to have the most up-to-date programs as well as easy access to IRS.gov. The IRS does not endorse any particular Free File company.

Taxpayers must have an adjusted gross income of $58,000 or less to quality for Free File software -- which covers about 70 percent of Americans [source: Free File Alliance]. If your income exceeds $58,000, you can still e-file for free online using Free File, but you must fill out the forms yourself. These forms do the math, but do not guide you through the tax preparation process.

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You may also be able to file your state income taxes using Free File if that particular software offers the ability to do so. The IRS website lets you choose your e-file software here or, if you're not sure which software you want to use, provides an online wizard to help you choose.

To save yourself some time, here's a checklist of everything you should have ready when you sit down to e-file your taxes.

  • Computer connected to the Iinternet
  • Valid email address for the software company to notify you about your tax return
  • Last year's adjusted gross income or an IRS electronic filing pin (find out how to get yours at the IRS website)
  • Social Security numbers for you and your dependents
  • W-2 forms from all of your employers
  • Any 1099-INT forms showing interest paid from the past year
  • Any 1099-G forms showing refunds, credits or offsets of state and local taxes
  • Receipts for your small business, if eligible
  • Receipts and/or paperwork from any additional income
  • Unemployment compensation, if applicable
  • Social Security benefits, if applicable

And, if you don't feel comfortable (or just don't want to) doing this yourself, you can always give your information to a tax professional who can e-file on your behalf.

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Sources

  • Bell, Kay. "Ways to electronically file your tax return." Bankrate. Jan. 30, 2014. (Oct. 1, 2014) http://www.bankrate.com/finance/money-guides/ways-to-electronically-file-your-tax-return-1.aspx
  • Free File Alliance. "Free File." 2014. (Oct. 1, 2014) http://freefilealliance.org/
  • IRS. "e-file Using a Computer." IRS.gov. Jul. 2, 2014. (Oct. 1, 2014) http://www.irs.gov/uac/e-file-Using-a-Computer
  • IRS. "Free File: About the Free File Alliance." IRS.gov. July 24, 2014. (Oct. 1, 2014) http://www.irs.gov/uac/About-the-Free-File-Alliance
  • IRS. "Free File: Do Your Federal Taxes for Free." IRS.gov. June 11, 2014. (Oct. 1, 2014) http://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free
  • IRS. "Free File What you need to get started." Feb. 14, 2014. (Oct. 1, 2014) http://www.irs.gov/uac/What-you-need-to-get-started