Free Tax Filing: 102 Million Americans Miss the Boat

As tax season approaches, a staggering number of Americans are overlooking a valuable resource that could save them significant money and stress. New analysis reveals that over 100 million eligible taxpayers failed to utilize the IRS Free File program, opting instead to pay for tax preparation services they could have received for free. This isn't just about a few dollars; it's a widespread financial oversight impacting millions of households nationwide.

The Bottom Line

• An estimated 102 million Americans who were eligible for the IRS Free File program did not use it.
• Only 2% of federal income tax returns were filed through Free File in the most recent filing season.
• Approximately 70% of all federal tax filers qualify for the Free File program based on income.
• The IRS Free File program provides free tax preparation and e-filing services through partnerships with leading tax software companies.
• Missing out on Free File means many taxpayers pay for services they are entitled to receive without cost.

What's Happening

According to a recent analysis by NerdWallet, based on IRS data, a vast majority of eligible taxpayers are not taking advantage of the IRS Free File program. Despite an estimated 70% of federal income tax filers qualifying for this service, only a paltry 2% actually used it during the last filing season. This translates to an astounding 102 million individuals who could have filed their federal taxes for free but chose not to.

The IRS Free File program is a public-private partnership between the Internal Revenue Service and several leading tax software providers. It offers free federal tax preparation and e-filing for taxpayers whose adjusted gross income (AGI) falls below a certain threshold, which is typically updated annually (for tax year 2023, this was $79,000 for most services). These participating software companies provide their services at no cost to eligible users, often including state tax filing for free or a reduced fee as well.

Why This Matters for Your Money

For the average American, tax season often comes with the unwelcome expense of tax preparation fees. These costs can range from tens to hundreds of dollars, depending on the complexity of your return and the service provider you choose. For the 102 million eligible individuals who paid for tax preparation, this represents a direct, avoidable outflow of cash that could have been saved, invested, or used to pay down debt.

Beyond the immediate financial savings, utilizing Free File can also offer a greater sense of financial control and empowerment. Instead of feeling obligated to pay for a service, you're leveraging a government-backed initiative designed to help you. It provides access to professional-grade tax software that guides you through the process, helping you avoid errors and ensuring you claim all eligible deductions and credits. This means not only saving money on preparation but potentially maximizing your refund or minimizing your tax liability, all without an extra fee.

In an economic climate where every dollar counts, overlooking a free, legitimate, and secure service like IRS Free File is a significant missed opportunity. It underscores the importance of being aware of the resources available to you, especially when they directly impact your personal bottom line. Making a conscious choice to use Free File can simplify your tax season and keep more of your hard-earned money in your pocket.

Action Steps

Don't be part of the 102 million missing out. Here's what you can do:

1. Check Your Eligibility: Visit IRS.gov/FreeFile to determine if your Adjusted Gross Income (AGI) falls within the current year's threshold for free services. The threshold is updated annually.
2. Explore Free File Options: Once eligible, you'll be directed to a list of IRS-partnered software providers. Each offers slightly different services and user experiences, so you can choose the one that best fits your needs.
3. Gather Your Documents Early: Have all your W-2s, 1099s, and other income/deduction documents ready before you start. This will streamline the filing process.
4. Consider Volunteer Tax Assistance: If your income is very low or you prefer in-person help, explore programs like the IRS's Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE), which offer free tax preparation by IRS-certified volunteers.
5. File Electronically for Speed and Accuracy: Free File services automatically facilitate e-filing, which is the fastest and most accurate way to submit your return and receive any refund.

Common Questions

Q: Who qualifies for IRS Free File?

A: Generally, taxpayers whose Adjusted Gross Income (AGI) is below a specific threshold qualify. For tax year 2023, this was $79,000 for most participating programs. The threshold is updated each tax year.

Q: Is using IRS Free File safe and secure?

A: Yes, the IRS partners with reputable tax software companies to provide these services. They are designed with robust security measures to protect your personal and financial information, just like paid versions of their software.

Q: What if my income is too high for IRS Free File?

A: If your income exceeds the Free File AGI threshold, you can still use the IRS's Free File Fillable Forms. This option allows you to fill out and e-file federal tax forms directly through the IRS website, but it provides no guided preparation and requires more tax knowledge.

Sources

Based on reporting by NerdWallet.