A TAXing Question
January 27, 2007 12:42 AM   Subscribe

H&R Block sells kinda pricey tax preparation software and for an extra $15 bucks, or so, you can file online using that software. Or, you can go to the IRS website and grab a link that allows you to prepare AND FILE your taxes for FREE -- using H&R Block's website. This makes no sense to me. Why on earth would they do that???

Granted, the free federal online tax preparation and e-file is limited to those with adjusted gross income of $52,000 or less ... but still, that's a hefty number of people.
posted by RavinDave to Work & Money (10 answers total) 3 users marked this as a favorite
IIRC, the HR Block online preparation is also for low-income. I've used it several times for both fed and state tax when I was a part-timer.
posted by Brittanie at 1:13 AM on January 27, 2007

*free* for low-income.
posted by Brittanie at 1:15 AM on January 27, 2007

Response by poster: Not sure I'd call $52,000 "low-income", though. Some of the other third-party sites limit it to half that (I think TurboTax does) ... I can almost understand that.
posted by RavinDave at 1:29 AM on January 27, 2007

Not only that, but it's taxable income, not gross.
posted by wierdo at 1:57 AM on January 27, 2007

I meant to say adjusted gross income, which is different, but I get confused..sorry. :p
posted by wierdo at 2:08 AM on January 27, 2007

Best answer: Chuck Grassley (R-IA) isn't particularly excited about Free File as it is right now. HR Block and other subcontractors who make this service available often use it to sell unnecessary services.

For instance, suppose you're entitled to a $800 return in 4-6 weeks. Now they know you have $800. You are a target.

HR Block offers to keep your return and instead to send you $1000 worth of certificates good at Applebees, Best Buy, wherever, in 12-16 weeks. They net a quarter of interest on your money, plus the kickbacks from the companies who are delighted to issue the certificates, "locking in" a certain amount of business for the year. (HR Block doesn't pay $1000 for these certificates; they pay much less.) Companies even know that a certain percentage of these certificates will never be redeemed.
posted by ikkyu2 at 2:31 AM on January 27, 2007

Wow..that's lame. Use TaxACT; at least last year, the only thing they were selling was "upgraded" software for more complicated returns and state filing.
posted by wierdo at 2:44 AM on January 27, 2007

Response by poster: Nice article. Addresses alot of my questions.

It does seem like a tier of taxpayers are essentially forced to pay a thrid party for the "privilige" of paying the IRS. Let's hope that trend goes the way of Pauly Shore movies.

The whole reason I'm looking at this issue now is that I miss the Telefile program -- that made my life much easier and (as Grassley seems to note) was prematurely yanked for no good reason.

Moreover, the IRS website is a nightmare of nested links (moreso last year, to be fair). I was annoyed by my inability to locate a clear explanation so much last year that I finally mailed my return in (always an option).
posted by RavinDave at 2:54 AM on January 27, 2007

My basic understanding is this: The IRS badly wants to get people to e-file. They badly want to move more of their business online. Tis saves them assloads of money in the long run. One of the ways to do this is to make it cost effective. This means some level of subsidization or incentives for tax preparing companies to get lower income people to do their taxes this way instead of the paper forms. However these companies want to make money and so they try to figure out ways to upsell you (or the shady practice with the gift certificates that ikkyu2 refers to).

I am someone who makes well below the "low income" level and does tax filing online for free and I am always amazed at how difficult it is to

1. figure out how to get to the "free" version of most of these companies' tax preparing websites
2. figure out how to not get upsold to a non-free version [this happened last year with turbotax, I clicked something that moved me form the free version to the non-free version without a lot of notice]
3. figure out how to refer people to free versions, when often the non-free version is made available online either before the free version or the pointers that are set up [the state of Vermont has a list of places you can prepare tazxes for free] way late in the game, considering most of us get our W-2/1099 forms by the end of January.

There is always a free version for seriously low income people, though it's often very hard to find. There is not always a free option for middle income people. This, in my opinion, is going to mean it's going to take the IRS longer to attain their goal of whatever percent e-filing that they are aiming for because people like you [and sometimes me] are going to mail in forms because they can't navigate the snake pit of e-filing options.
posted by jessamyn at 8:43 AM on January 27, 2007

If you have an account at State Farm Bank, you can use the online version of TurboTax (and e-file) for free, no income limit, few annoying upsell attempts.

But yeah, as Jessamyn says, the IRS subsidizes it. If it costs $20 to process a paper return and $5 to process an e-filed return, then it makes sense for the IRS to pay H&R Block or whoever $15 for each return.

Or maybe even more -- it reduces the need for front-end data entry personnel, and that budget might be used to audit more returns, which is probably more profitable. That's probably part of the reason they only offer the free tax prep to lower-income filers, too -- they want to subject the higher-income filers' returns to more human scrutiny.
posted by kindall at 10:59 AM on January 27, 2007

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