E-Filing

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According to the IRS, over 68 million people—maybe including you—e-filed individual tax returns in 2004. Do you know how e-filing came about? Or how it works? Read on for an overview.

In 1986, the IRS and a few private sector firms began offering electronic filing to individual taxpayers. But these free services were inconsistent, not always free and not widely publicized.

In October 2002, the IRS signed a three-year renewable agreement that created a public-private partnership with Free File Alliance, LLC. The Alliance is composed of tax software manufacturers, and is managed by the Council for the Electronic Revenue Communication Advancement (CERCA). CERCA is a not-for-profit trade association.

Each participating company is listed on the IRS web site and offers guidelines to determine whether you’re eligible to use their free service. Eligibility is based on criteria such as income levels, age and/or state residency.

Once you choose the company you want to work with, the link on the IRS web site takes you to the alliance member’s web site. There, you prepare your tax return using the company’s software. When complete, your return is routed back to the IRS e-file system.

Sound simple? Lots of others think so, too, which explains why e-filing continues to grow in popularity. In 2002, 47 million tax returns were filed electronically. By the end of the 2004 filing season, 62 million returns were e-filed. The goal is to have 80% of all tax returns filed electronically by 2007.

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