Tuesday, May 15, 2007

Why should e-filing of US taxes cost more?

Yesterday, about six weeks after I filed my taxes by mail, I got a letter from the Internal Revenue Service (IRS) asking me to send them a couple of additional forms. These are forms which I had already sent with my original filing. The letter from IRS stated that:
The delay that has resulted from this request for additional information may have been avoided if you had electronically filed your tax return.

The implication here is that the additional forms I sent were lost in the paper shuffling process, something that would not have happened if I had filed electronically.

Well, I would be glad to file electronically. In fact, if something can be done electronically, rather than using paper, I make sure that I don't use the paper. There is a reason why I didn't file my taxes electronically: the US government, in all its wisdom, has decided that filing electronically should cost a whole lot more than filing with paper!

If you file your taxes through TurboTax software, filing electronically costs $34 for federal and state taxes combined. In contrast, filing by paper cost me only 78 cents postage! These costs are in addition to the cost of the TurboTax software itself - which is almost $40.

Now, why should e-filing cost more for the tax payer? Especially when it costs the government less to process electronic filings: $2.65 to process paper filings versus 29 cents for e-filings! Given this fact, you would think that the government would encourage people to e-file, giving them every incentive to do so. Instead, it allows corporations like TurboTax and H&R Block to charge exorbitant fees for e-filing.

This is a classic story of governmental screw-up, in conjunction with corporate greed. You see, the big accounting corporates persuaded the government not to allow direct e-filing by all the taxpayers, so that these corporates could e-file on our behalf and charge us exorbitant fees... ostensibly to maintain and operate the e-filing infrastructure! Disgusting!

Related article in the New York Times.

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