Electronic tax filing gains popularity

WASHINGTON -- Electronic filing of self-prepared federal income tax returns has jumped 20% this year.

And the Internal Revenue Service thinks the trend will continue through the April 15 filing deadline.

A major factor is September's decision by the makers of the two most popular tax preparation software kits to no longer charge an extra $12.95 fee for each tax return that's filed electronically.

Given the choice of paying $12.95 or buying a stamp to mail a printout of the tax return prepared on a computer, many Americans opted to use the U.S. Postal Service.

David Williams, director of electronic tax administration for the IRS, says there's another reason for the popularity of paper-free tax returns.

"People are just more comfortable with doing things online," Williams said. "People are more comfortable with online banking and other things."

Last year, 55% to 60% of all federal tax returns were filed electronically. Congress wants that to reach 80%. Williams predicts it will be a little more than 60% this year.

The conversion has financial benefits for the federal government. It costs the IRS an average of $2.87 to process each paper return, compared with 35 cents for an electronic return.

And electronic returns have benefits for taxpayers as well:

• Tax software corrects simple math mistakes.

• It advises people of tax deductions and tax credits they may not be aware of.

• Refunds can be sent out in as little as eight days if a taxpayer chooses to use direct deposit.

• Payments by taxpayers who owe money can be electronically delayed until April 15 even if the return is filed early.

Paid tax preparers filed about two-thirds of electronic returns.

Among people who do their own taxes on a computer, about 5 million used a special website last year that the IRS and a group of 20 tax preparation software companies sponsored called the Free File Alliance.

Free File is available again this year to people earning less than $56,000. It is offered under an agreement the IRS struck with software vendors to make their products available free to 70% of tax filers.