A detailed review of FreeTaxUSA, a low cost tax preparation software for both federal and state tax returns. Is it really free? We have the answers.
FreeTaxUSA is an online tax preparation website that enables you to prepare, print, and e-file your taxes for free. At least that’s true in regards to filing your Federal income tax return. This appears to be a pretty solid, if not spectacular, online tax preparation software.
Let’s take a closer look.
Who and What is FreeTaxUSA?
The company is owned by TaxHawk, Inc. It started in 2001 and was founded by a CPA and a team of professional software developers. The company is an original member of the IRS Free File Alliance (http://freefilealliance.org/) and an authorized IRS e-file provider. It has securely filed millions of federal tax returns with the IRS.
Each year a team of tax analysts update the software to incorporate the most recent changes in federal and state tax codes. When the software is updated, it goes through rigorous testing and an approval process with both the IRS and each state.
Learn More: How to Get an Extension for Filing Your Taxes
The site claims that it grows by promoting itself mostly by word-of-mouth. Filers keep coming back since there are no charges for the roll-over of prior year tax data. In addition, the pricing is straightforward and has no hidden fees.
Still another advantage is that FreeTaxUSA has only two versions–Free and Deluxe. This is in contrast to other popular tax preparation software companies that typically have four, five, or even more versions. Filers may find the higher number of versions and their associated add-on fees to be both confusing and intimidating. None of that exists with FreeTaxUSA.
Here are the basic benefits of using FreeTaxUSA to prepare and e-file your income tax returns.
Even Complicated Tax Situations Are Covered By Both Editions
With competing tax preparation tax software programs, you usually have to buy a premium version in order to handle self-employment (Schedule C), rental real estate (Schedule E), capital gains transactions (Schedule D), and the various types of K-1 related income sources. But FreeTaxUSA can handle all of those on both the Free and Deluxe editions.
Unlike with most of the other major players in the tax software game, the forms you can access with FreeTaxUSA don’t vary by version. The upgraded version is all about additional support rather than additional forms. This means you can likely get all the tax forms you need filed through the free option.
Affordable Care Act
FreeTaxUSA is set up to accommodate any fees you may need to pay for not having healthcare coverage in 2017. They will also help you to claim any exemption from the penalty.
Based on my review, I would say that FreeTaxUSA provides limited direct customer support.
You can search for support topics on the Customer Support page or take advantage of the customer support email feature. If you pay for the Deluxe Edition, you can also get free support through chat or see if the answer to your question is in the Q & A database.
Like other online tax preparation software programs, FreeTaxUSA guarantees the accuracy of their tax calculations. They will pay the interest and penalties if you’re assessed any by the IRS due to a calculation error in their software.
The Deluxe version of FreeTaxUSA provides Audit Assist, which gives access to audit specialists who can answer your questions should you be subject to an IRS audit. It also lets you access the Audit Center, which is a database of information you might find helpful during the audit process.
The Audit Assist tool is much more limited than those provided by more expensive providers. According to FreeTaxUSA’s disclaimer, Audit Assist doesn’t cover state returns, and it doesn’t give you a representative who will correspond directly with the IRS. You’ll still have to do the work, but the experts will help you craft responses to the IRS, know what records to gather, and help you know what steps to take next.
FreeTaxUSA provides what I think would best be termed limited audit protection through their Audit Assist feature. This service is available only if you purchase the Deluxe Edition.
Related: I Was Audited By the IRS!
They give you access to the FreeTaxUSA Audit Center, as well as with audit specialists who can answer your specific questions. The Audit Center provides information as to how to respond to the specific IRS notice that you receive, as well as information on how to respond to either an IRS letter or an IRS audit.
Other tax preparation softwares provide more audit representation, but for a much steeper price. If you go through an audit, you may still need to hire a representative. However, if you’re at low risk for an audit, paying an extra $6.99 to access this feature could give you some peace of mind.
FreeTaxUSA is an authorized IRS e-file provider. They encrypt your personal information on their site. In addition, they conduct security and privacy verifications through Truste, Norton, and SecurityMetrics.
Online Backup and Account Rollover
FreeTaxUSA will back up your completed returns online, even with the free version. The free version will also automatically carry last year’s information over to your current year’s taxes if you use the software two years in a row.
Even if you didn’t file with FreeTaxUSA last year, you may be able to import some of your tax information from another service. This year, the software rolled out a new feature that allows for a PDF import of your prior year’s tax returns.
I tried the PDF import option when checking out this year’s software. It was simple to use and smoothly uploaded my personal information and previous employer information. This definitely saves some time.
Cheap State Returns
As with many tax preparation software services, you’ll have to pay extra to e-file your state tax return. This isn’t uncommon. But the price of filing state returns with FreeTaxUSA is relatively low. You’ll only have to pay $14.99 to file your state returns based on your federal tax return information and additional information you provide this year.
Interface and Ease of Use
The interface for FreeTaxUSA is less fancy than that of some other, more expensive softwares. It has the same basic features, though, including a tracker for your estimated refund as you go and tabs for the various portions of your return.
Unlike with some other software options, FreeTaxUSA won’t allow you to bounce ahead of the process. You’ll have to go in order, though once you enter some information in a section, you can go back to a previous section to make changes or additions. Notice from the screenshot above, I cannot select anything other than “Personal” until that section is completed.
This isn’t a big deal as long as you plan to file your taxes all at once. If you’re like me, though, you may prefer to put in each form as you receive it. You’d have a much harder time doing this efficiently with FreeTaxUSA. But at least you wouldn’t miss any sections on your taxes.
FreeTaxUSA does not advertise itself as being all things to all people. Here is a list of the tax situations that they don’t support, taken directly from their website:
- Foreign employment income (Form 2555)
- Foreign mailing address
- Household employment taxes (Schedule H)
- Nonresident alien returns (Form 1040NR)
- Farm rental (Form 4835)
- At-risk limitations (Form 6198)
- Installment sales (Form 6252)
- Tax for children with more than $2,000 in investment income (Form 8615)
- Prior year minimum tax credit (Form 8801)
- Archer MSAs (Form 8853)
For what it’s worth, I give the company a lot of credit for publishing a list of the tax situations that they don’t support.
Limited Customer Support
With the free version of this software, you can email support, or get your question answered in the online forum. If you upgrade to the Deluxe version, you’ll get access to online chat support. You can also get priority support to have your questions answered more quickly if you pay an extra $5.99 while using the Free version, or if you just update to the Deluxe version.
Pay to Amend
Many of FreeTaxUSA’s additional services cost extra, though the costs are small. You’ll have to pay extra to correct a mistake or omission on your tax return if you go through the Free version. In fact, you’ll have to pay $14.99 for each amendment if you file using the Free version. However, if you filed originally under the Deluxe version, you’ll get unlimited amendments for free.
FreeTaxUSA comes in two editions, Free and Deluxe:
Like the free version of just about any service, “free” has its limits, even with FreeTaxUSA. Free extends to the following services:
- Federal Tax Return
- E-file Service
- Account Information Roll Over
- Printing of Tax Return
- Online Backup of Completed Returns
- Complex Tax Filing
- Federal Tax Extension
There are, however, charges for certain functions. To start, there is a $14.99 charge for state filing and preparation. There is no additional charge for state e-filing, but the $14.99 fee is per state, so you can multiply that charge by the number of states you need to file taxes in.
Some other services that come with a fee on the free version:
- Amended Tax Return – $9.95
- Priority Customer Support – $5.95
- Professionally Printed Tax Return -$5.95
- Printed & Bound Tax Return – $12.95
We can presume that the last two features might be desirable if you needed to present your tax returns for business or borrowing purposes. But it’s unlikely that they are anything you’d need to have in the normal course.
One more thing: the Audit Assist function is only available on the Deluxe Edition. If your return is fairly simple and straightforward, this feature may not be necessary. But if there is a reasonable likelihood of facing an audit, you may do well to spring for the extra $6.99 and trade up to the Deluxe Edition. (Though given the limited scope of this service, I’d take it a step farther and say that you’ll be better off with a different online service entirely if this is the case.)
The base price of the Deluxe Edition is $6.99, and it includes all of the services of the Free Edition, plus a few more. And just as is the case with the Free Edition, there is a charge of $14.99 per state return.
The Amended Tax Return and Priority Customer Support features–which you have to pay extra for with the Free Edition–are included in the Deluxe Edition. The Audit Assist feature is also included in the base fee with the Deluxe Edition.
Other than the per state charge, the only additional fees on the Deluxe Edition are the Professionally Printed Tax Return ($6.99) and the Printed & Bound Tax Return ($12.95) features. And again, you’ll probably only want these for presentation purposes, but probably don’t need them at all.
While the idea of getting tax software for free is always appealing, you’ll still be looking at a cost of $14.99 for the Free Edition if you have to file taxes in your state. The Deluxe Edition base price is only $6.99, and it includes the services you’d have to pay extra for with the Free Edition. If you have to file in your state, your total price would be $18.90 for the whole Deluxe Edition.
With a difference of just $6.99–which is more than reasonable for the services provided–I think you’d be much better off paying for the Deluxe Edition. That way, you can avoid add-ons for other services you may want or need.
My Conclusion About FreeTaxUSA
Overall, FreeTaxUSA is a decent online tax preparation software package, and the price is certainly one of the best in the field. Just be aware of the program’s limitations, such as the lack of phone support, the limited nature of audit assistance, and the tax situations that it doesn’t support.