IRS’ Free File. The federal agency runs a partnership with 13 tax prep companies that offers free federal and state filings for Americans whose annual income is $62,000 or less. Forms are free regardless of tax complexity. While most companies in the program support free state filings, the IRS warns that “some may not.”
For now, Credit Karma is placing interested users in a reservation queue. “We don’t know if we’re going to get a million users or hundreds of millions,” Lin says. “We hope we can cover everyone.”
Credit Karma makes money by suggesting its users consider new mortgage loans, credit cards and other financial products that match income data.
H&R Block. Known for its brick-and-mortar stores, H&R Block introduced last week its first free online state filing option for customers who file federal returns using 1040EZ and 1040A, which are simpler forms. Consumers with additional complexities will have to pay more for other forms.
TaxAct. The company said this week that its TaxAct's Online 2016 Free Edition allows users who file simple federal returns (1040 EZ/A) to file state returns for free. "Bait and switch tactics have become a common pattern in the do-it-yourself online tax preparation industry,” says Rob Gettemy, TaxAct’s COO. “It is not customer-friendly.”
TurboTax. Owned by Intuit, TurboTax runs its Absolute Zero program, which lets consumers file federal and state taxes online for free if they use the simple federal returns (1040 EZ/A).
While free e-filing options are convenient, personal information submitted to tax software companies is more sensitive than other online transactions, says Chi Chi Wu, staff attorney of the National Consumer Law Center. "Look for (the site's privacy policy) carefully and don’t just click, click, click,” she says. "There’s a lot of rich information. Think about if you want to share.”
With more free online options, the IRS also warns of proliferating phishing scams, in which a person claiming to be a tax company rep may seek personal information. More than 400 fraudulent tax-related domains were registered between Jan. 15 and Feb. 14, 2016, according to Online Trust Alliance.
Earlier this year, the nonprofit group performed an online security audit of the 13 tax prep companies in the IRS Free File Alliance and found that six failed in "either consumer protection or site security.
The IRS says collection notices are sent via traditional mail. It never calls to demand immediate payment using a specific payment method or ask for credit- or debit-card numbers over the phone. It also never demands that you pay taxes without an opportunity to appeal.
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