As satisfying as sealing a tax return into its envelope and delivering it to the post office may be, it is highly unnecessary. Pressing a ‘send’ button accomplishes the same thing with greater assurance of receipt, acceptance and speedy processing.
Electronic filing has been around since 1986. And just as technology has advanced since then, so too have the capabilities of the Internal Revenue Service.
Every conceivable form and worksheet along with instructions is now available and downloadable through the IRS Web site. Also available are an online calculator for determining the appropriate amount of withholding for the coming year, forms for requesting copies of old returns and access to the ‘Where’s My Refund?’ feature, which pinpoints a return’s processing progress and when a refund can be expected.
Though electronic filing has also become more user-friendly over the years, paper returns still account for nearly half of all returns. Why so many forgo the e-file option is unclear, especially in cases where the taxpayer is due a refund.
Typically it takes three weeks to receive a refund after filing a paper return — even longer if the return is filed around April 15. But an e-filed refund is processed in about half the time, according to the IRS — less if it is to be direct deposited to a bank account or accounts. This year taxpayers have the option of splitting refunds over two or three different accounts, including IRAs at brokerage firms or with mutual fund companies, automating any intention they may have of saving at least some of their refunds.
Taxpayers who owe the government money have the option of e-filing early and scheduling an automatic payment at the last minute — that would be April 17, the deadline for filing this year. Similarly estimated tax payments may be scheduled to automatically occur throughout the year.
“Usage seems to be a matter of comfort level,” says Julie Miller, spokeswoman for Mountain View, Calif.-based Intuit, the maker TurboTax. “People who do everything else online seem to be more comfortable filing online. But with a filer’s age [or their preparer’s] and a return’s complexity you do find greater resistance or simply an inability to use the option.” Electronic filing, for instance, is not an option for amended returns or those involving a recently deceased person.
“Maybe it is an age thing,” confesses 66-year-old Chicagoan Mike Sheehan. He has been using TurboTax for years to prepare his taxes. “You just plug in the numbers. Now that 1099s and W-2 forms are available electronically, it is even easier,” he adds.
Yet, despite Sheehan’s comfort with tax-preparation software, he has been an e-filing holdout, choosing to print his return and send it in, along with his payment, by certified mail.
“I can not explain it,” admits Sheehan, who expects to break his paper habit this year. “Though in the past after writing a check to the government, I did not feel like paying another $15 just to save myself a trip to the post office. It is not that far away.”
But such fees are beginning to disappear, says Kristin Siolka, an enrolled agent and spokeswoman for the National Association of Tax Professionals headquartered in Appleton, Wis. “Many software companies and preparers no longer charge separately for e-filing. Instead, they are bundling it into the cost of their services or software packages.”
Actually, fees should not be an issue for 70 percent of taxpayers or some 95 million individuals. The IRS Free File program allows most taxpayers reporting an adjusted gross income of $52,000 or less (in 2006) to e-file their federal tax returns for free through one of the members of the Free File Alliance LLC. These are private sector tax software companies who offer access to their services through links from the IRS Web site.
Many of these firms also offer free state income tax preparation and filing along with free filing for this year’s telephone excise tax refund. This is a one-time refund available to anyone — whether they are required to file a tax return or not — who paid the federal excise tax on long distance phone service between February 2003 and August 2006.
Despite the large number of taxpayers qualifying for Free File, fewer than 5 percent used the option last year. Siolka said lack of Internet access and awareness of the program may account for the low numbers.
But awareness does not seem to be an issue where acceptance of e-filing is concerned: A lack of appreciation for its benefits seems the bigger culprit.
“One of the primary advantages of e-filing is that if there is an error in the return, it is immediately identified and the return is rejected, enabling the filer to fix it right away,” says Siolka. "With a paper return, it can take weeks or months to resolve an issue.” Those weeks can seem inordinately long if a refund is due; especially considering most errors involve easily remedied corrections to math or Social Security numbers.
“Not only is there less room for error with an electronically filed return, you know it has been received,” adds Denise Sposato, a spokeswoman for H&R Block in Kansas City, Mo., the nation’s largest originator of electronic returns. The IRS confirms receipt and acceptance of each e-filed return after it checks for errors and before it takes payment or refund instructions. That confirmation, which comes in the form of a unique receipt number, is typically received within 48 hours of transmission — far more conclusive than certified mail.
While the IRS’s reason for pushing filers online is obvious — it represents significant cost-savings for processing returns — the slow acceptance is not.
“Really, there is no reason not to file electronically if you can,” says Siolka. Though it eliminates the challenge and camaraderie of a frenzied late night run to the post office alongside all the other last-minute paper filers to ensure a return is time-stamped ahead of the midnight filing deadline.