Do I Qualify For Free Tax Filing? How To Avoid The Upgrade Trap

Countless Americans each year take tax filing sites at their word: “File with us for free!” Yet after entering all of their tax information, many of those consumers get an unpleasant surprise: They don’t qualify for free filing and instead, have to fork over some dough to file their returns.

This scenario is exactly why the FTC announced that they’re suing Intuit, makers of the popular TurboTax software, for deceptive trade practices. The FTC claims that Intuit misleads millions of consumers each year, making filers think they can file for free when in fact, two-thirds of filers didn’t meet the stringent criteria to use TurboTax’s free product.

While TurboTax, H&R Block and other tax software products can make it challenging to file for free, it’s not impossible. Here’s how to know if you meet the free file criteria for many of the popular online tax filing sites before you’re hit with a bill, and other ways you can truly file your federal tax return for free.

1. Who Can Typically File for Free?

Taxpayers with the simplest filing situations will typically have the best opportunity to take advantage of free online tax filing services, which include both your federal and state returns.

“The returns these [free online filling] programs are good for are taxpayers that have a single or married filing joint status, W-2 income only and take the standard deduction,” says Rob Burnette, financial advisor and professional tax preparer at Outlook Financial Center.

2. What Tax Situations Can Usually Trigger an “Upgrade”?

With many advertised online tax software products, you might encounter a situation where the software you’ve chosen thwarts your attempts to file for free and says you need to upgrade to finish filing your taxes. Here are some common situations where you’ll be forced to upgrade (pay) to file:

  • You were a part-year resident in multiple states.
  • You want to file a state return for more than one state with your federal return.
  • You have carry-forward losses (from a business, an estate or capital gains).
  • You received a K-1 from an estate or trust.
  • You need to file a nonresident alien return.
  • You want to file state taxes without a federal return.
  • You’re married filing separately in a community property state.

But for many advertised online tax software products, you may be asked to upgrade after you’ve done the time-consuming work of entering all your tax information and you’re ready to file. So when told you have to upgrade, you’re faced with a tough choice: abandon your filing and enter your information again on another tax filing site, or pony up the cash to be done with your taxes.

3. What Can I Do If I’m Told I Have to Upgrade to File?

If your priority is filing for free, you may have to file your taxes elsewhere if you run up against an upgrade when filing through an advertised free file program. Here are a few alternatives to file your federal return (and potentially your state return) for free:

  • IRS Free File. The little-known IRS Free File service provides an alternative to advertised free tax offerings (e.g. TurboTax, H&R Block and TaxAct). It lets you file your taxes online using guided software from one of the many approved Free File partners if your AGI is less than $73,000. You can still file for free if you make over $73,000 but the only option to still file for free is using the IRS’s Free Fillable Forms, which is a non-guided means of completing your taxes online. If you use IRS Free File products, the provider must disclose all fees upfront.
  • GetYourRefund. While April 1 is the deadline to submit documents to work directly with a tax preparer to file your federal return for free, you can use their DIY option for incomes up to $73,000 and still meet the filing deadline.
  • Cash App Taxes. Formerly Credit Karma Tax, this is perhaps the heaviest hitter in the “file for free” space because they really mean it. There are no income thresholds, and they support the broadest number of forms of any free filing service. They’re also transparent about the forms they support and forms they don’t support. Be sure to check both lists before you start your return. You can file online or through their app. State returns are also included with CashApp Taxes for free.

4. Who Can File for Free Through IRS Free File?

To determine if you qualify for IRS Free File, there are three main areas you need to check: Your income, the forms you need to file and the state taxes you need to file.

You Must Meet the AGI Limits

The IRS Free File online service is available to taxpayers who have an adjusted gross income (AGI) of $73,000 or less. However, the IRS allows each filing partner to set its own maximum income limits to qualify for free filing, and some have AGI thresholds lower than $73,000.

If your income is greater than $73,000, you can use the IRS free fillable online forms, but they provide little in way of help so you should feel confident about filing your taxes without assistance.

Your Forms Must Be Included

The good news is that there are a wide variety of forms you’re able to file with free federal return filing options such as IRS Free File. The IRS has a complete list available, but if you don’t see your form or don’t know which forms you need, here are some common tax situations where you can file at no charge:

  • Children to claim as dependents
  • Student loan interest you’ve paid
  • Profit or loss from a business (Schedule C)
  • Interest and dividend income
  • Retirement account distributions (including from annuities)
  • You qualify for the Child Tax Credit
  • You qualify for the Earned Income Tax Credit

Your State Must Be Supported

Of the eight IRS Free File partners, only two (OnLine Taxes and FreeTaxUSA) include free state returns if you qualify for their free federal return thresholds). TaxSlayer and offer free state returns for some states. The remaining four partners don’t offer free state return filing for any taxpayers.

Even If You Can File for Free, Should You?

Even though the simplicity of free filing software can vary greatly between providers, most taxpayers can use the guided, step-by-step process with a provider to enter their required information and file an accurate return.

But there could be a “hitch” in your simple tax situation that leads you to make an error with DIY software that could ultimately cost you.

Burnette at Outlook Financial Center worked with a client who found her refund through a free filing site to be much lower than she expected. He was quick to identify the discrepancy.

“The program didn’t recognize that [my client’s] child lived with her all year, but she didn’t claim the dependent deduction because the child’s father claimed his child’s deduction by divorce decree,” he says.

The result? The program deprived his client of the higher standard deduction for a head of household and prevented her from qualifying for the earned income tax credit. Thanks to Burnette stepping in, he was able to amend the client’s return, increasing her refund to $3,000.

“We amended the three years prior to correct those returns, too, recapturing over $8,000,” he says.

If you have questions about whether a free online tax filing site truly captures your unique tax scenario, it could be worth a quick call with a tax professional. A few questions can help you determine whether a DIY approach or working with a tax pro will be a more suitable choice.

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