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Choosing Your Income Tax Return Form

Free File is not necessarily free, and it is confusing

The IRS free file initiative was designed to help low income taxpayers efile their returns. But, if you are using Free File, read the fine print BEFORE you start work on your tax return. Free file can be confusing and many hidden fees can apply, Your privacy and security may also be at risk.

A Safer, Easier Way to File Your Taxes is to use Low-Cost E-File Companies

Reputable companies like Taxhead.com charge a small fee to efile your tax return, but honor and respect your privacy. According to their Privacy Policy, which is monitored by P3P, your information will never be sold, disclosed, or used for cross marketing. Taxhead.com also offers a single fee, with no hidden charges, to e-file your federal income tax return.

Considering Free file? Watch out for Cross Marketing Programs

Read the Privacy policies. Often companies are offering free tax e-file only to get your personal information and sell it to others, or use it themselves to sell you other products. This is a common tactic of the free e-file companies. If you are interested in the privacy and security of your personal taxpayer information, read the privacy policy carefully.

Considering Free file? Watch out for any "hidden fees" in preparing your return.

While you may qualify to have your federal return electronically filed for free, other services offered by the commercial filers may not be free. Hidden costs are everywhere, so be alert and aware. Some companies participating in Free File may offer to "professionally review" your tax return after you file it, or they may offer an online interactive feature to answer your questions, all for a price.

Check to make sure what, if any, costs would be charged if you have questions about your tax return once it is filed. Make sure to understand if the company will charge to help you fix any problems you might later have with your tax return, if they even offer this service. Free Assistance my also be available. Call the Taxpayer Advocate's office at 877-777-4778.

Considering Free file? Beware of pitches for costly refund anticipation loans.

If you Free File and arrange for direct deposit of your refund into a bank account, the IRS says you should have your money generally within ten days. The IRS does not charge any fees to do this and you receive your FULL refund amount. Nevertheless, participating companies in the Free File program offer refund anticipation loans (RALs). If you agree to an RAL, you will receive the dollar amount due you by the IRS as soon as you file your tax return. You should understand that RALs are NOT REFUNDS. RALs are loans with interest. RALs always include interest, usually very high, and many times an additional fee will be added. An RAL reduces the amount of your REFUND by the amount of the fees and interest charges. The longer it takes you to pay back your RAL the more it will cost you. Think carefully before you agree to an RAL. You are liable for the RAL (loan) even if your refund from the IRS is disallowed in whole or in part. This is because an RAL is a separate loan from a lender. It is not your refund.

The IRS does not encourage or endorse the use of RALs offered by commercial providers.

You have important rights as a taxpayer. If you are uncertain of your rights, contact:

There is no single way to determine who qualifies for Free File so you will need to do some homework. In order to qualify, you also must meet one or more eligibility conditions, including:

Still, the process can be confusing. Seventeen companies are participating in the Free File alliance, and each has its own criteria for determining who can e-file for free. For example, one company offers free e-filing for those with an adjusted gross income of $30,000 or less. Another offers the service to someone with an adjusted gross income of $100,000 or above. Still other companies offer free services to anyone 50 or older, taxpayers on active military duty, or residents of specific states.