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Free Tax Filing for 2007: The Rules Have Changed (Again)

Contributed by mm | January 30, 2007 8:23 AM PST

Starting from 2004, PFBlog has been tracking the development of free tax filing options endorsed by IRS (2004, 2005). In the past years, literally everyone with whatever financial circumstances can find a willing provider to file federal tax returns for free.

Evidently, IRS is tweaking the rules of program every year to find the win-win balance between the taxpayers and the commercial tax software companies that make the free tax filings possible. This year is no exception. According to IRS rules, this year you will only qualify for free filing if your Adjusted Gross Income (AGI) is $52,000 or less. As a matter of fact, some providers in the directory have extra criteria: some only offer free filing for taxpayers living in certain states, while others impose some age limitation.

Still, this program will surely benefit a good number of taxpayers, but how will this program benefit these for-profit companies?

First, the free filing is only for federal tax returns. Almost all providers in the program will charge you for state tax filings. (And that's why some companies will only free file for those living in certain states -- other states do not have state income tax, robbing the tax preparation companies of an important revenue stream.)

Second, for those who have a sizable tax refund, or those who are eligible for Earned Income Tax Credit, the tax preparers have a chance to upsell you to Refund Anticipation Loans, a type of loan that will give you refund a few weeks earlier than IRS will send the refund check, but also charge payday-loan-like interest rate.

Third, you may unintentionally agree to allow the tax preparers to share your information for marketing purposes, thus opening the door for those companies to sell your information for a fee (or sell you other products).

Regardless, if you are financially literate, have a simple return and have some spare time to work on your finance, seize the opportunity if you qualify for free filing. Not only will you save a few dollars, you will also get better understanding of your tax situation, and thus understand how you can manage your tax differently in the coming year to lower your tax bill.

This Post Has Received 18 Comments. Share Your Opinions Too.


Nagel Commented on January 30, 2007

Free filing should be for all and it should be easy--but it is not.

More on 2007 tax tips: http://finance.webaplex.com/01/tax-tips/


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