Electronic preparation, filing, and payment of taxes are getting more popular every year. If you have wondered about doing your taxes the electronic way, here are the answers to some common questions.

Why should I file my return electronically?

Here are some of the reasons why electronic filing (E-Filing) makes sense for most taxpayers.

Using software reduces mistakes. According to the IRS, over 17.5% of returns prepared on paper have errors—mostly from miscalculating, using the wrong tax tables, or forgetting to enter some information—and half of those errors result in an overpayment. On the other hand, only 1/2 of one percent of taxes prepared electronically have any errors.

Another advantage of doing your taxes electronically is speed.

  • If you use the IRS Telefile program to enter information for simple returns over the phone, you can expect to file your taxes in about ten minutes, according to the IRS.
  • If you use tax software to prepare more complicated returns, an average return takes two hours as opposed to an average of 6.7 hours for preparing a paper return, according to TurboTax research.
  • You can deliver your return faster over the Internet than by mail, and with less chance that some clerk at the IRS will make a mistake entering your information. At the IRS each electronic return is run through an extensive series of error checks. If the IRS detects an error, you usually receive a detailed report of the error within 48 hours. This allows you to fix any errors and retransmit the return at your convenience. This process has dropped the error rate for E-Filed tax returns accepted by the IRS to less than 1/2 of one percent.

If you’re expecting a refund, you will get it much more quickly if you file electronically.

  • Refunds from tax returns filed on paper typically take anywhere from two to six weeks to arrive, depending on the time of year you filed the tax return.
  • Last tax season, the average wait for taxpayers that used TurboTax to E-File their returns, then elected to have their refunds deposited directly into their bank accounts was nine to sixteen days for their federal refund.

The United States Congress has said that the IRS must have 80% of all tax returns e-filed by 2007. So the IRS is doing everything it can to make this process work well.

How will I Know That the IRS Has Received my Return?

When you send a paper return by mail, you have no way of knowing if the IRS received your return unless you pay extra for a return receipt.

When you file electronically, the IRS first receives your return and then accepts or rejects your return. When the IRS gets your electronic return, they run it through a set of extensive validations (error checks) to ensure that it contains the necessary data in the proper format.

  • If your return fails one of these tests, the IRS rejects it and posts an error code indicating the reason for rejection. Your tax preparation software translates the code into a text message that tells you what item(s) in your return caused the rejection, how to fix the item(s), and how to retransmit your return.
  • If your return is error-free and is accepted as electronically filed, you are assigned a unique 14-digit Declaration Control Number (DCN) that serves as proof that your return has been accepted as electronically filed within 48 hours.

Can I Avoid Having to File Anything on Paper?

Yes, in most cases. This area of electronic filing is still evolving, but you can generally file your return without any paper. You use a self-selected Personal Identification Number (PIN) just as you do at a bank ATM. You use the PIN as your electronic signature.

To use this program you must:

  • Be over 15 years of age
  • Not file certain documents requiring signatures (such as Form 1045 or Form 8332) with the return
  • Meet certain citizenship or alien status requirements

The number of forms that must be signed and mailed on paper goes down every year.

Can I File My State Return Electronically, Too?

In 37 states, you can e-file your state returns at the same time as you file your federal return, from your personal computer. This is called a Federal/State e-file. Essentially, you send both returns to the IRS, and the IRS electronically forwards your state return to the tax folks in your state.

Alabama Kansas North Dakota
Arizona Kentucky Ohio
Arkansas Louisiana Oklahoma
Colorado Maryland Oregon
Connecticut Michigan Pennsylvania
Delaware Mississippi Rhode Island
District of Columbia Missouri South Carolina
Georgia Montana Utah
Hawaii Nebraska Vermont
Idaho New Jersey Virginia
Illinois New Mexico West Virginia
Indiana New York Wisconsin
Iowa North Carolina  

New Hampshire has a tax on interest and dividends, though no income tax. New Hampshire is not participating in the E-Filing program.

A few states allow you to file your state return directly: California, Illinois, Maine, Maryland, Massachusetts, Minnesota, and New York.

Will my Tax Return Data be Kept Confidential?

Yes, in two ways.

  1. The IRS, the states, and your tax preparers are under the same rules of confidentiality for E-Filed returns as they are for paper returns. They may not reveal or discuss any information contained in your tax return unless you specifically authorize it.
  2. Tax software developers must operate under the same confidentiality rules and, in addition, must protect customer confidentiality during the E-Filing process. To ensure the integrity of your E-Filed tax return, always use (and if you go to a tax preparer, be sure your preparer uses) only proven, high-quality E-Filing software.

Can I File Electronically If I Owe Money?

Yes.

You can pay electronically or on paper. For your federal return, you can use a credit card to pay what you owe, or you can have your bank account directly debited for some or all of what you owe. States are gradually adding the direct debit option and credit card payments.

To pay federal taxes by mail, send IRS Form 1040V along with your check.

To pay state taxes by mail, send a check with the corresponding form for your state.

How Much Does it Cost to File my Return Electronically?

Because the IRS and states do not charge for E-Filing, the only costs associated are those charged by your tax preparer or tax software. Depending on the software brand and version, electronic filing charges for the previous filing season ranged from free to $20 to $25. Tax preparers may charge more.

If I’m Getting a Refund, When can I Expect to Receive It?

For tax returns E-Filed this past tax season, taxpayers using TurboTax and electing to have their refunds deposited directly into their bank accounts waited an average of nine to sixteen days to receive their federal refunds.

Refunds from tax returns filed on paper typically take anywhere from two to six weeks, depending on the time of year you filed the tax return.

What Forms do I Need to Send via Regular Mail When I File Electronically?

If you take advantage of the “Self-Select PIN for e-file” program (and we strongly suggest that you do), you don’t have to send any forms other than those we mentioned before— Form 1045 or Form 8332.

If you don’t use the PIN, the IRS and the states usually require you to mail two forms when E-Filing.

  • Form 8453OL is a signature document that is required by the IRS before they consider your return to be filed. Even if the IRS accepts your E-Filed return and you get a DCN, they don’t consider your return to be filed unless they receive form 8453OL from you.
  • The 1040V payment voucher should accompany your check for the balance due, if you don’t use the Direct Debit or Credit Card methods of payment. While there is no documented evidence of the IRS not cashing a check sent to them, your check could be misapplied if Form 1040V doesn’t accompany your check. This mistake could result in an enforced collection action by the IRS, requiring you to convince the IRS that they actually received the check (an almost guaranteed adventure in surrealism).