Hitting the Return Key : Tax Filing by Computer Means You Can Get Your Refund Faster
It’s the same every year. You wait and wait and wait to file your income taxes, then you rush to meet the deadline. Then you wait and wait for your refund, sometimes up to 10 weeks.
Half the problem can be resolved this coming tax season when electronic filing of income tax returns--the “wave of the future”--debuts in Southern California.
For those Californians expecting refunds on their federal income taxes, the ability to file returns by computer means that they will wait an average of only 18 days to get a check back from the Internal Revenue Service, an agency official said.
Electronic filing is a 3-year-old system that the IRS has been phasing in across the country. Eventually, it will allow taxpayers to use home computers to file returns and, possibly, to use credit cards to pay taxes due.
The system is designed to get refunds back to taxpayers within 3 or 4 days, and the agency may be able to attain that goal in the next few years, said Kathleen Stockham, electronic filing coordinator for the IRS in Laguna Niguel.
And refund checks can go directly into taxpayers’ banking accounts, saving even more time, she said.
But there is a slight hitch.
If taxpayers want to send in their returns electronically, they have to go either to a tax preparer or to a center approved by the IRS for transmitting tax returns to the agency’s regional refund center in Ogden, Utah.
The transmitting centers are usually sidelines for existing businesses, most typically computer service bureaus that already churn out hard copies of individual tax returns. In some cases, the IRS said, applicants are trying to create new businesses based on transmitting tax returns electronically.
About 200 preparers and transmitting centers in the Laguna Niguel IRS district have filed applications for permission to file returns directly, and Stockham said she expects 400 to 500 more preparers to file applications by Nov. 15 to be allowed to refer their clients to specific transmitting centers.
The district covers Orange, San Diego, Riverside, San Bernardino and Imperial counties and the South Bay portion of Los Angeles County. The rest of Los Angeles County is in a separate IRS district that also will join the program this year, and about 200 preparers and transmitting centers there have sought IRS approval for electronic filing.
No Southern California offices of H&R; Block Inc., the nation’s leading tax preparer for individuals, will join the electronic system this tax season, said Steven R. Dickey, marketing director for the Kansas City, Mo., firm.
Last winter, Dickey said, the company advertised its ability in certain markets to file returns electronically, and the tremendous demand that followed forced the firm to halt its marketing effort for a few weeks so its own computers could handle the onslaught.
This coming season, with added computer capacity, Block will offer electronic filing for the first time in the San Francisco Bay area and will continue the service in the Sacramento and Stockton areas, Dickey said. Eventually, all of the company’s 7,466 offices nationwide will offer the service, he said.
The electronic filing system offers a number of advantages over the traditional paper process.
The system not only gets money back to taxpayers quicker, it corrects minor mathematical errors and such mistakes as transposed Social Security numbers. It also acknowledges that the returns have been received.
The system also eliminates postal costs and vast amounts of paper storage for both tax preparers and the government agency. And since about 500 returns can be sent in 30 minutes, telephone costs are minimal.
“It is what they claim it to be--the wave of the future,” said Alan Griffith, senior tax manager in the Costa Mesa office of Arthur Young & Co., a national accounting firm. “It just makes sense. The paper-work burden is becoming just so extensive.”
The electronic filing system, inaugurated in Phoenix, Cincinnati and three North Carolina cities in 1986, has grown to encompass taxpayers in 36 states this coming tax season. Only two of five IRS districts in the state--Sacramento and San Jose--were part of the system last winter, but the entire state will be included this time.
Last winter, when taxpayers in 16 IRS districts were able to participate, 583,462 returns were filed electronically.
There are some limitations, though. Only those expecting refunds can file electronically. Those who have to pay would be able to use the system if Congress ever approves the use of credit cards to pay taxes owed, Stockham said. About 80% of all returns result in refunds, the agency estimates.
Also, more complicated returns with, for example, more than three Schedule Cs for the self-employed, or returns for married couples filing separately still must be mailed in, Stockham said.
“Eventually, corporations of all sizes will be able to file electronically, and that’s when the real savings comes in,” Griffith said. “Those returns can range from 40 pages to 500 pages long.”
And some day, Stockham said, individuals using home computers will be able to send in their tax returns electronically. For now, though, they will be paying preparers and service centers up to $40 or more for electronic filing if they want to get their refunds back quickly.
The cost may be worth it to those who otherwise might take out so-called “refund anticipation” loans. A bank typically charges $35 or more for a short-term loan that is equal to or less than the refund, said Dickey of H&R; Block.
The costs for individuals to transmit their own returns electronically could be prohibitive now. Software vendors are peddling their programs for about $2,000 to $3,000 each, and individuals would need a computer modem, which links computers by telephone, that is twice as fast as most home computer enthusiasts have now.
With electronic filing, taxpayers can’t “sign” their returns on the computer yet. Instead, they sign and mail in separate documents indicating what they filed and where they want the refunds sent.
The only serious problem encountered by the IRS occurred last year when software products failed to keep up with last-minute changes Congress made in the tax laws in December. And the only continuing problem is with taxpayers themselves.
“Taxpayers who file electronically can have their refunds deposited automatically in their bank accounts, rather than getting a check,” Stockham said. “But sometimes taxpayers close their accounts before the refunds come through.”
The refunds get straightened out, but it takes longer, she said.
NUMBER OF FEDERAL TAX RETURNS FILED ELECTRONICALLY
Year... Number
1986... * 25,000
1987... 77,615
1988... 583,462
* Estimated
In 1986, five metropolitan areas in three IRS districts were used. In 1988, the agency expanded the system to cover 16 districts, or 25% of its districts. In 1989, electronic filing will be available in 48 districts, or 75% of the agency’s districts.
Source: Internal Revenue Service
