Study: Taxpayers could save $1.2 billion with free e-filing

Free electronic filing of taxes would save taxpayers and the Internal Revenue Service billions and greatly reduce errors, Congress' Joint Economic Committee said, based on state-by-state analysis it released today.

Taxpayers must pay a fee to file their taxes electronically through software companies and other electronic originators through agreements with the IRS, said Sen. Charles Schumer (D-N.Y.), the committee's chairman.

Taxpayers would save more than $1.2 billion annually in e-filing fees if taxpayers earning more than $52,000 could e-file for free, the study said.

While processing each paper return costs $2.50, an e-filed return costs only 30 cents each, the committee said. The IRS also finds roughly one error in every 100 returns filed electronically, regardless of whether the return was prepared professionally or self-prepared by the taxpayer, compared with about one error in every five paper returns, Schumer said.

Online tax filing is the easiest, cheapest and most efficient way for Americans to pay their taxes, he said. The IRS projects that 62 percent of the 138 million taxpayers will file electronically this year.

Although filing electronically saves the IRS millions of dollars, taxpayers pay fees to do so; while paper returns, which are more expensive for the IRS to process, do not have an additional charge, he said. As a result, some individuals who prepare their taxes on their computer print the forms out and send them in as paper returns to avoid paying the filing fee in addition to the cost of the tax preparation software.

“The bottom line is that the IRS is imposing an additional ‘tax’ on people paying their taxes,” Schumer said. “The current system forces millions of Americans to pay a fee for the ‘privilege’ of filing their taxes, even though e-filing is cheaper for the IRS to process,” he said.

Schumer said he plans to introduce a bill on April 15 that would eliminate the fees paid to e-file, provide free e-filing directly with IRS, and impose a $50 penalty per offense on any company that charges a tax filing fee to individuals.

The Joint Economic Committee's analysis provides a state-by-state breakdown of how much taxpayers spent in 2007 to file their taxes online and also charts the progress of e-filing, based on an e-file charge of $14.95 per return and assuming that 7 percent of e-filed returns were free under the Free File Alliance. Software companies agreed to offer free electronic filing for individuals whose income is under $54,000.

About the Author

Mary Mosquera is a reporter for Federal Computer Week.


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