An E-File America?
Posted on May 29th, 2008 – 11:52 AMBy Kara McGuire
The e-filing numbers are in, folks. And despite Congress’ desire for us to reach 80 percent of taxpayers using e-file, we’re falling short of that goal. Originally, Congress set 2008 as the year to reach 80 percent. But for tax year 2007, just 62 percent of taxpayers filed electronically, up from 57 percent for tax year 2006.
In Minnesota, we’re above average, with 74 percent of filers e-fling for tax year 2007 compared with 71 percent in tax year 2006.
However, both of those 2006 numbers looked higher at this time last year and were eventually revised downward. So we may not be as hip to e-filing as it initially appears. Click on the chart below for more details.
All those stories about e-filing soaring? Well, more people did e-file this year, because more people filed tax returns this year. That’s due in part to requiring a filed tax return in order to receive the economic stimulus rebate, prompting low income and elderly folks who may not have had a reason to file most years to grab their tax forms or head to the IRS web site. But the percentage of returns still being e-filed would not be characterized as “soaring” in my book.
In Minnesota, state e-filing surpassed the 2 million mark this year.
Congress recently extended the deadline to meet its 80 percent e-filing goal to the year 2012. They’re hot on the idea because e-filing reduces IRS costs , tax filing errors, and speeds up refunds
Do you think Congress should mandate e-filing? And if you are a paper filer, I’m curious to know why on earth you’re still spread out at the dining room table with white-out in one hand and a felt tip in the other.
19 Responses to "An E-File America?"
Here is my rule of thumb: if I owe I send in my return snail-mail with a paper check. Fill out the pdf forms and print - so no white-out… If I am getting some of MY money back - then I try to find the cheapest way to e-file. So far I’ve used eFile Express - it’s only $7 for fed and $7 for state. If it is cheaper for the IRS and they encourage people to do so, then make it free for everyone not just for filers under a certain AGI. I love doing my taxes with the long form (not via turbo tax) - I like all of the reminders of all of the socialistic programs I’m paying for…
I use Turbo Tax so had nothing spread out on the table and no whiteout was used.
It certainly would’ve been more convenient to e-file but I refuse to pay $17.95 just to push some bits around the internet.
I’ll efile when I can do so for no cost.
I file paper forms because I understand my taxes better that way, and because it’s bad enough I have to pay taxes in the first place, much less pay a service to file them for me. =)
I think e-filing saves the IRS just a dollar or two per return, but costs me upwards of $20.
-Ryan
“Do you think Congress should mandate e-filing? And if you are a paper filer, I’m curious to know why on earth you’re still spread out at the dining room table with white-out in one hand and a felt tip in the other.”
No. Personally I pay a guy to do my taxes. But a lot of people don’t. It is inappropriate for Congress to presume that everyone will be able to efile, considering that rates of computer ownership and net connectivity are less than 100%.
It actually saves the IRS a LOT more than a $1 or two per return, when you factor all the manpower involved in receiving the return, entering it into the system and such. The fact that e-filed returns aren’t subject to the input errors of paper returns saves money down the road when the IRS doesn’t have to spend manpower to clear up those errors. That money that’s been saved can then be directed towards efforts to collect money that is already owed, but unpaid, which in turn generates more revenue.
So…it’s probably saving you as the taxpayer at least $20 to efile with the IRS. Plus - you can deduct the cost of preparing your taxes.
And while many people do not have computers or internet access - those that are considered low-income do have assistance available to them in filing their taxes, and most of those organizations do use e-filing. The 80% e-filing goal seems to take the non-universality of internet access into account.
Even though I am of the slightly older “millennial generation”, I do paper filing because its easier for me to make sure I don’t miss anything, and that I can take all the time I want (I’m not a good details person and often miss things the first time though). Also, last year I tried the H&R Block free e-file and they didn’t come up with as large of a refund as I did filling it out myself and taking advantage of deductions that the e-file didn’t even ask about.
It costs the IRS 2.67 to process a paper return, as opposed to 0.29 for an e-filed return [1], a difference of 2.38.
It’s difficult to say what exactly that cost entails. Does it account for problems down the line that result from transcribing errors or the reduction in payroll costs, or is it merely a “snapshot” of one part of the process?
I would think the true cost of savings would be harder to determine given variables down the line. I’m skeptical that they are able to give such a precise answer to such a multi-faceted question, which leads me to think that they’ve only factored in a few of the obvious and easily figured numbers into the equation, without considering some of the less easily quantifiable measures of savings.
Yes, we should assume it’s at least $20, because that seems like a good made-up number, instead of using something that is reasonably based on available evidence.
I suspect the cost is very easy to determine: you divide the total cost of accepting paper returns by the number of paper returns accepted. That number is $2.67.
That number is 9.2 times as high as for e-filing because of all the resulting costs.
Why do I do a paper return? Because I do it myself, my return is very simple at this stage in my life, and I don’t want or need to shell out bucks for a program, an accountant, or other access to e-file. The numbers will soar, or at least go up, when there stops being a charge to e-file.
I have access to a laptop computer, and I use Turbotax to do my taxes. I print the result out on a printer and put them in envelopes and file by first class mail. I do not qualify for “free efile” and therefore do not wish to pay money on top of what I already owe the government. I’ll efile when the cost to submit my state and federal tax is under $1 combined. I don’t even include a check anymore when I mail the tax forms. I pay using EFTS or the minnsota tax website (no cost).
Let’s separate electronic PREPARATION from FILING here, shall we? Because the former doesn’t necessarily lead to the latter, as Matt explains (I do the same thing). He and I are probably the exception to the rule, but I’m sure there are plenty of others. Although it might get harder to do it that way - I saw the software getting “bundled” with the e-file charge last year - so that might be your only choice in the future, given that I think the software companies make just as much money from the filing charges as they do from the software purchases.
Anyway, Turbotax and H&R Block’s TaxCut both do the same thing: “interview” you (like an accountant would) so that it can fill out the forms for you. That’s a heck of a lot easier than trying to interpret them and fill them out yourself. And if you make a mistake, it’s easy to go back and fix. But it DOESN’T mean you have to e-file (although I admit printing stuff out is kind of a pain).
Folks with Adjusted Gross Income (AGI) of less than $54K last year could E-File for free - although I’ve heard you have to jump through quite a few hoops to get it done. Check out this article: http://blog.seattlepi.nwsource.com/consumersmarts/archives/134732.asp
rgart, the tax preparation deduction is subject to the 2% AGI floor - which means for average Americans who don’t have a lot of miscellaneous deductions, they won’t be able to deduct that cost (see IRS pub 529). I agree the IRS probably IS saving a bundle with each return e-filed, but if that’s the case, why don’t they pass it on to us DIRECTLY by giving us a DISCOUNT to e-file? It doesn’t make any sense.
I don’t think the software companies should charge us anything for filing either (the value is in helping you fill out the forms, not sending a transaction over the internet). Sure, sometimes new technology takes some startup costs and fees are justified to cover that, but after your startup costs, it’s just pure profit.
mike d, matt, and I all do the same thing. Use a program, print out the results, throw them in an envelope and mail them off.
As soon as I can submit my return to the IRS and the MN Dept of Revenue for less than the cost of first class postage I will do so.
This is a soapbox issue for me, too. Why on EARTH should I pay some company $20 or more to e-mail my taxes to the IRS, when it is SAVING the government so much money? You know, $20 may not seem like much to an individual, but there is a principal here. I should NOT have to PAY a company for a service that is already SAVING them money.
So I do my taxes on the computer using the free PDF froms from the IRS - no whiteout involved, no more tables of paperwork surrounding me than would be required for any other electronic method for creating the tax forms - and continue to print out and mail in the forms.
It is my small protest against the incredulous oxymoron of someone expecting ME to PAY in order to SAVE THEM MONEY. If the IRS is scratching their heads to figure out why e-filing rates are not soaring, they need to get a clue.
I still think that’s a high number. I see so many older people out there that don’t even know how to operate a computer let alone e-file. As the younger generation becomes older, this number will defintely increase.
I use Turbo Tax to do five Federal returns a year for myself and family members; four different state returns are involved. I e-file the two most complicated returns and mail the rest. I do not appreciate having to pay the IRS to save them money. To use the free e-file, I would have to reenter all of the data. Using this method exclusively would also eliminate one advantage of using Turbo tax year after year, a product that saves a lot of data entry. I do e-file a couple of the state returns on their free sites and it is a real pain.
While I am on my soapbox, why do we pay a filing fee to renew license plates? Would they prefer we stand in line or send paper?
A lot of government agencies are still getting the kinks worked out of electronic services, believe it or not (see the security problems that cropped up in the last few years with electronic tab renewal), and it’s cost them a lot of money to get them started up. In my mind, this justifies small fees for electronic filing - to START. But then, once you hit a certain threshold, I feel an agency should flip it the other way and start charging more for paper. Yes, you need money to support the IT systems for electronic processing - but in the long run, it’s less than the cost of labor for data-entry, etc.
That’s me back on the soapbox. There’s obviously a lot of assumptions built in. 
It seems there are some assumptions that the government gets a cut of the fee paid for electronic tax preparation and filing. The government doesn’t see a dime of it. The fees are charged by the third-party software companies for a product/service that helps you file a more accurate return and helps you avoid reading the tax booklet cover to cover to make sure you didn’t miss out on a valuable tax credit or deduction.
I completely agree with Laura and some others. My return isn’t complicated, so I don’t want or need to pay for that “help” that 3rd party software provides. I refuse to pay extra for a delivery method that actually costs the government less.
