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Taxpayers Waste Billions on Filing Federal Returns
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do not influence our editors’ opinions or ratingsAnalysis: Taxpayers Waste Billions on Filing Federal Returns
Each year, 70% of taxpayers qualify to file federal returns for free, but few do. The unnecessary spending could top $13 billion.
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19 years of experience Expertise Economics Data analysis Personal financeAs NerdWallet’s Senior Economist, Elizabeth Renter spends her time analyzing economic trends and data to help people make more informed decisions about their personal finances. Her work has been cited by The New York Times, The Washington Post, the "Today" show, CNBC and elsewhere. Prior to joining NerdWallet in 2014, she was a freelance journalist. She received a Masters of Science in Finance and Economics from West Texas A&M University, and focused her elective coursework on macroeconomics and analytics. When she’s not at work, Elizabeth enjoys college football, old houses, traveling to old cities and powerlifting. She is based in Durham, North Carolina.
As NerdWallet’s Senior Economist, Elizabeth Renter spends her time analyzing economic trends and data to help people make more informed decisions about their personal finances. Her work has been cited by The New York Times, The Washington Post, the "Today" show, CNBC and elsewhere. Prior to joining NerdWallet in 2014, she was a freelance journalist. She received a Masters of Science in Finance and Economics from West Texas A&M University, and focused her elective coursework on macroeconomics and analytics. When she’s not at work, Elizabeth enjoys college football, old houses, traveling to old cities and powerlifting. She is based in Durham, North Carolina. Published in Economist & Spokesperson + more + more
Lead Assigning Editor
Expertise Personal finance credit scoring debt and money managementKathy Hinson is a former Lead Assigning Editor for the Core Personal Finance team at NerdWallet. Previously, she spent 18 years at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Prior experience includes news and copy editing for several Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in journalism and mass communications from the University of Iowa.
Kathy Hinson is a former Lead Assigning Editor for the Core Personal Finance team at NerdWallet. Previously, she spent 18 years at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Prior experience includes news and copy editing for several Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in journalism and mass communications from the University of Iowa. Lead Assigning Editor + more + moreIt’s a worthwhile aim: Make the annual filing of federal income taxes both easier and free for millions of Americans. But although those have been explicit goals of the IRS Free File program since its inception nearly 20 years ago, the revenue service and an alliance of several tax software companies fall considerably short, and a majority of taxpayers, including those with the lowest incomes, are paying the price.
It’s a worthwhile aim: Make the annual filing of federal income taxes both easier and free for millions of Americans. But although those have been explicit goals of the IRS Free File program since its inception nearly 20 years ago, the revenue service and an alliance of several tax software companies fall considerably short, and a majority of taxpayers, including those with the lowest incomes, are paying the price.Though 70% of taxpayers qualify for Free File, less than 3% actually use the service. This shortfall of some 87 million taxpayers, on average, could put as much as $13 billion in the pockets of tax prep companies and professionals each year, according to analysis of IRS data and a NerdWallet survey conducted online by The Harris Poll.
Though 70% of taxpayers qualify for Free File, less than 3% actually use the service. This shortfall of some 87 million taxpayers, on average, could put as much as $13 billion in the pockets of tax prep companies and professionals each year, according to analysis of IRS data and a NerdWallet survey conducted online by The Harris Poll. AD Owe $10,000+ or More? This Tax Season Could Be Your Chance to Qualify Each year the IRS writes off millions in tax debt, yet few have applied. Learn moreon Anthem Tax Services' website
AD Let’s resolve your tax issues: Tax Relief & Resolution Services for IRS Tax Debt Certified Enrolled Agents, CPAs, and Tax Attorneys on your case. Learn moreon TaxRise's website
How Free File works (ideally)
How Free File works (ideally)In 2002, the IRS joined forces with a group of tax software providers, known as the Free File Alliance, to provide free filing services to federal taxpayers meeting certain income qualifications. Each year, 70% of all taxpayers who earn the least qualify to use Free File software. The income cap used to reach this 70% goal is reevaluated annually by the IRS. In 2022, those with adjusted gross incomes of $73,000 or less qualify.
In 2002, the IRS joined forces with a group of tax software providers, known as the Free File Alliance, to provide free filing services to federal taxpayers meeting certain income qualifications. Each year, 70% of all taxpayers who earn the least qualify to use Free File software. The income cap used to reach this 70% goal is reevaluated annually by the IRS. In 2022, those with adjusted gross incomes of $73,000 or less qualify.While $73,000 of income may make you fairly comfortably middle class, in some areas of the country, roughly half of those with an adjusted gross income under $75,000 came in under $30,000 in the 2020 filing year.
While $73,000 of income may make you fairly comfortably middle class, in some areas of the country, roughly half of those with an adjusted gross income under $75,000 came in under $30,000 in the 2020 filing year.Taking advantage of Free File requires taxpayers to navigate to the IRS website and choose a software company from the agency’s portal. There are currently eight providers of the Free File service, including lesser-known software companies like 1040Now and TaxSlayer. Bigger-name companies such as TurboTax and H&R Block have left the Free File Alliance over the past two years. The eight remaining may control how many returns they do for free by having additional limits such as age, state of residence and more restrictive income caps. Taxpayers are able to view these restrictions and choose a provider that fits their needs before navigating from IRS.gov using a direct link to the partner’s Free File page, where they can begin their income tax return.
Taking advantage of Free File requires taxpayers to navigate to the IRS website and choose a software company from the agency’s portal. There are currently eight providers of the Free File service, including lesser-known software companies like 1040Now and TaxSlayer. Bigger-name companies such as TurboTax and H&R Block have left the Free File Alliance over the past two years. The eight remaining may control how many returns they do for free by having additional limits such as age, state of residence and more restrictive income caps. Taxpayers are able to view these restrictions and choose a provider that fits their needs before navigating from IRS.gov using a direct link to the partner’s Free File page, where they can begin their income tax return. Track your finances A NerdWallet account is the smartest way to track your savings, credit cards, and investments together in one place. Sign UpThe cost of not filing for free
The cost of not filing for freeAssuming a typical $150-per-taxpayer filing cost and reviewing a decade’s worth of IRS data, we estimate Americans could be overpaying to the tune of up to $13 billion each year. Even a more conservative estimate — $40 per taxpayer, on average — puts the tab at $3.5 billion.
Assuming a typical $150-per-taxpayer filing cost and reviewing a decade’s worth of IRS data, we estimate Americans could be overpaying to the tune of up to $13 billion each year. Even a more conservative estimate — $40 per taxpayer, on average — puts the tab at $3.5 billion.An analysis of 10 years of IRS data indicates 2.4% of taxpayers file their federal return for free each year, on average, using either Free File software or paper forms. That means over the past decade, roughly 87 million taxpayers each year have failed to file for free, despite being eligible.
An analysis of 10 years of IRS data indicates 2.4% of taxpayers file their federal return for free each year, on average, using either Free File software or paper forms. That means over the past decade, roughly 87 million taxpayers each year have failed to file for free, despite being eligible.In 2020 alone, among 148 million individual tax returns filed, just 4.2 million were filed for free, a shortfall of 99.5 million from the 70% benchmark. Because the number of federal filers has increased each year over the past decade, so has the size of this shortfall.
In 2020 alone, among 148 million individual tax returns filed, just 4.2 million were filed for free, a shortfall of 99.5 million from the 70% benchmark. Because the number of federal filers has increased each year over the past decade, so has the size of this shortfall.Americans who paid to file federal tax returns in 2021 typically spent $150, according to a recent NerdWallet survey conducted online by The Harris Poll among 1,025 federal filers who paid to file 2021 taxes (referred to as American filers). Half of American filers paid less and half paid more.
Americans who paid to file federal tax returns in 2021 typically spent $150, according to a recent NerdWallet survey conducted online by The Harris Poll among 1,025 federal filers who paid to file 2021 taxes (referred to as American filers). Half of American filers paid less and half paid more.Assuming those who failed to Free File paid roughly the same as other paying filers, that’s $13 billion in unnecessary spending.
Assuming those who failed to Free File paid roughly the same as other paying filers, that’s $13 billion in unnecessary spending.How much someone pays to file their tax return depends on a variety of factors, including the complexity of the return, the software company they use and whether they choose to hire a professional. Even those who plan to use a tax company’s free option may be convinced to upgrade to paid versions when it’s not entirely necessary, according to a years-long investigative series from ProPublica. Some of the least-expensive software options hover around $40. Even at that rate, those who could’ve used Free File are spending $3.5 billion unnecessarily.
How much someone pays to file their tax return depends on a variety of factors, including the complexity of the return, the software company they use and whether they choose to hire a professional. Even those who plan to use a tax company’s free option may be convinced to upgrade to paid versions when it’s not entirely necessary, according to a years-long investigative series from ProPublica. Some of the least-expensive software options hover around $40. Even at that rate, those who could’ve used Free File are spending $3.5 billion unnecessarily.And remember: This group includes the lowest-earning taxpayers in the country.
And remember: This group includes the lowest-earning taxpayers in the country.Taxpayers likely don’t know about Free File options
Taxpayers likely don’t know about Free File optionsOffering a product or service doesn’t guarantee its use — people have to know it’s available. Taxpayers who knew they could file their federal return for free likely would. The volume of those failing to take advantage of the Free File service indicates many may simply be unaware.
Offering a product or service doesn’t guarantee its use — people have to know it’s available. Taxpayers who knew they could file their federal return for free likely would. The volume of those failing to take advantage of the Free File service indicates many may simply be unaware.A 2020 audit of the Free File program by the Treasury Inspector General for Tax Administration found about 30% of taxpayers who paid to file didn’t know about the program or how to access it. When confronted with this finding, the IRS responded that it advertises the service and rules governing it through its website, social media and press releases, materials the average taxpayer — unless they fancy themselves an income tax wonk or IRS fan — isn’t likely to encounter.
A 2020 audit of the Free File program by the Treasury Inspector General for Tax Administration found about 30% of taxpayers who paid to file didn’t know about the program or how to access it. When confronted with this finding, the IRS responded that it advertises the service and rules governing it through its website, social media and press releases, materials the average taxpayer — unless they fancy themselves an income tax wonk or IRS fan — isn’t likely to encounter.And knowledge of the program isn’t enough — taxpayers must also understand the requirement that they access these filing options through the IRS website. Navigating directly to a Free File Alliance member page doesn’t ensure taxpayers are encountering the Free File option, and they may instead be seeing a software company’s free version not governed by the same rules of the agreement with the IRS.
And knowledge of the program isn’t enough — taxpayers must also understand the requirement that they access these filing options through the IRS website. Navigating directly to a Free File Alliance member page doesn’t ensure taxpayers are encountering the Free File option, and they may instead be seeing a software company’s free version not governed by the same rules of the agreement with the IRS.The biggest tax software providers specialize in murk
The biggest tax software providers specialize in murkIf taxpayers take to Google to find “free file” results, they’re met first with three to four sponsored ads, each for free versions of tax software not governed by the Free File Alliance rules. A small “Ad” designation differentiates the results. Only after scrolling past these do people find an IRS entry point.
If taxpayers take to Google to find “free file” results, they’re met first with three to four sponsored ads, each for free versions of tax software not governed by the Free File Alliance rules. A small “Ad” designation differentiates the results. Only after scrolling past these do people find an IRS entry point.This potential trap was one of many called out in a 2019-20 investigative series from nonprofit newsroom ProPublica that identified how popular tax software companies actively worked against making tax preparation simpler and more affordable for taxpayers. These companies would offer their free services but use clever marketing to convince users to upgrade for a fee, according to the series.
This potential trap was one of many called out in a 2019-20 investigative series from nonprofit newsroom ProPublica that identified how popular tax software companies actively worked against making tax preparation simpler and more affordable for taxpayers. These companies would offer their free services but use clever marketing to convince users to upgrade for a fee, according to the series.These companies also commonly increase their prices as the tax deadline draws near, penalizing taxpayers who don’t file right away.
These companies also commonly increase their prices as the tax deadline draws near, penalizing taxpayers who don’t file right away.In addition to muddying the waters about what qualified as Free File versus filing for free, at least one of the tax software giants was found to be withholding its true Free File landing pages from Google search results.
In addition to muddying the waters about what qualified as Free File versus filing for free, at least one of the tax software giants was found to be withholding its true Free File landing pages from Google search results.This series and the attention it garnered led to increased scrutiny and ultimately tightened standards in the Free File Alliance agreement.
This series and the attention it garnered led to increased scrutiny and ultimately tightened standards in the Free File Alliance agreement.In 2020, H&R Block left the Free File Alliance. TurboTax, owned by Intuit, followed suit in 2021.
In 2020, H&R Block left the Free File Alliance. TurboTax, owned by Intuit, followed suit in 2021. AD Owe $10,000+ or More? This Tax Season Could Be Your Chance to Qualify Each year the IRS writes off millions in tax debt, yet few have applied. Learn moreon Anthem Tax Services' website
AD Let’s resolve your tax issues: Tax Relief & Resolution Services for IRS Tax Debt Certified Enrolled Agents, CPAs, and Tax Attorneys on your case. Learn moreon TaxRise's website
What taxpayers need to know in 2022 and beyond
What taxpayers need to know in 2022 and beyondKnow if you qualify for Free File
Know if you qualify for Free FileYour 2021 adjusted gross income must be $73,000 or less to qualify for IRS Free File this year. You can begin your return with one of the Free File Alliance companies or estimate your AGI yourself, if you’re uncertain whether you meet the income qualifications.
Your 2021 adjusted gross income must be $73,000 or less to qualify for IRS Free File this year. You can begin your return with one of the Free File Alliance companies or estimate your AGI yourself, if you’re uncertain whether you meet the income qualifications.Access Free File only through the IRS website
Access Free File only through the IRS websiteOn the official IRS website, browse all eight providers or use an IRS tool to choose the Free File software company that best fits your needs. If you use a search engine to find “free file,” you run the risk of landing on a page not beholden to the IRS-Free File Alliance rules.
On the official IRS website , browse all eight providers or use an IRS tool to choose the Free File software company that best fits your needs. If you use a search engine to find “free file,” you run the risk of landing on a page not beholden to the IRS-Free File Alliance rules.Know what to expect when you file your state return
Know what to expect when you file your state returnTwenty-two states and Washington, D.C., offer their own Free File program, according to the IRS. But fees in other states vary widely. The tax software company you choose should be able to walk you through the costs and specifics, given your state(s) of residence. You can also visit the website of your state’s Department of Revenue to check cost specifics ahead of time so you’re not caught off guard.
Twenty-two states and Washington, D.C., offer their own Free File program, according to the IRS. But fees in other states vary widely. The tax software company you choose should be able to walk you through the costs and specifics, given your state(s) of residence. You can also visit the website of your state’s Department of Revenue to check cost specifics ahead of time so you’re not caught off guard.If you don’t qualify for Free File, tread cautiously
If you don’t qualify for Free File, tread cautiouslyThere are many tax software companies offering filing help for a fee, and these fees vary widely. Research your options so you know what to expect for the price you’re paying and the services you really need.
There are many tax software companies offering filing help for a fee, and these fees vary widely. Research your options so you know what to expect for the price you’re paying and the services you really need.Know where to turn for help
Know where to turn for helpTax preparation software generally holds your hand through the filing process, but questions may arise. Many tax prep companies have online chat services and telephone assistance to answer questions as you go, but they may come at an additional price.
Tax preparation software generally holds your hand through the filing process, but questions may arise. Many tax prep companies have online chat services and telephone assistance to answer questions as you go, but they may come at an additional price.The IRS provides answers to some frequently asked questions, opens Taxpayer Assistance Centers in more populous areas during tax season, and provides tax preparation services to some populations including adults 60 and older and people living with disabilities, as well as people with low incomes or limited English. The agency can also be reached at 800-829-1040 for simple tax help.
The IRS provides answers to some frequently asked questions , opens Taxpayer Assistance Centers in more populous areas during tax season, and provides tax preparation services to some populations including adults 60 and older and people living with disabilities, as well as people with low incomes or limited English. The agency can also be reached at 800-829-1040 for simple tax help.The number of Americans who qualify to use IRS Free File but do not was determined using 2011-2020 IRS Data Books to determine the number of individual returns filed in a fiscal year, and the difference between 70% of those returns and the sum of those who used Free File or filed a paper return. While the 70% guideline applies to the share of filers who should be able to Free File in a filing year, using the average of a series of 365 day periods (fiscal years as tracked in IRS Data Books) is a proxy for these more precise (but unavailable) numbers.
The number of Americans who qualify to use IRS Free File but do not was determined using 2011-2020 IRS Data Books to determine the number of individual returns filed in a fiscal year, and the difference between 70% of those returns and the sum of those who used Free File or filed a paper return. While the 70% guideline applies to the share of filers who should be able to Free File in a filing year, using the average of a series of 365 day periods (fiscal years as tracked in IRS Data Books) is a proxy for these more precise (but unavailable) numbers.When analyzing IRS data, including paper returns with Free File returns means the estimated number of people missing out on IRS Free File is a conservative one. Also, though filing a paper return typically requires the cost of postage, these costs are generally negligible and would artificially deflate the average amount spent if included in the survey question.
When analyzing IRS data, including paper returns with Free File returns means the estimated number of people missing out on IRS Free File is a conservative one. Also, though filing a paper return typically requires the cost of postage, these costs are generally negligible and would artificially deflate the average amount spent if included in the survey question.The median amount spent in a single year on federal tax filing does not include those who didn’t file in 2021 or those who didn’t pay to file in 2021. This figure is based on findings from the following survey:
The median amount spent in a single year on federal tax filing does not include those who didn’t file in 2021 or those who didn’t pay to file in 2021. This figure is based on findings from the following survey:This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet Feb. 22-24, 2022, among 2,077 U.S. adults ages 18 and older, among whom 1,025 paid to file 2021 federal income taxes. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Chloe Wallach at cwallach@nerdwallet.com.
This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet Feb. 22-24, 2022, among 2,077 U.S. adults ages 18 and older, among whom 1,025 paid to file 2021 federal income taxes. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Chloe Wallach at cwallach@nerdwallet.com. About the author Elizabeth Renter Elizabeth Renter Elizabeth Renter's work as NerdWallet’s Senior Economist has been cited by The New York Times, The Washington Post, CNBC and elsewhere. See full bio.Helpful resources
Helpful resources How Federal Tax Brackets and Rates Work Capital Gains Tax: Long and Short-Term Rates for 2025-2026 How to Fill Out Your W-4 Form and When to Adjust It More like this Taxes 2026 Tax Brackets and Federal Income Tax Rates The IRS adjusts the federal tax brackets annually to keep pace with inflation. The 2026 tax brackets apply to taxes filed in 2027. Bella Avila Standard Deduction for 2025 and 2026: Amounts, When to Take The standard deduction is a popular way for taxpayers to reduce their taxable income. Your deduction amount depends on your age, filing status and other factors. 2 By Sabrina Parys, Tina Orem Capital Gains Tax: Long and Short-Term Rates for 2025-2026 Capital gains are the profits from the sale of assets. They can be subject to short-term or long-term tax rates. 2 By Sabrina Parys, Tina Orem 25 Popular Tax Deductions and Tax Breaks for 2025-2026 A deduction cuts the income you're taxed on, which can mean a lower bill. A credit cuts your tax bill directly. Learn more about common tax breaks and write-offs — and how to claim them. 2 By Sabrina Parys, Tina Orem Federal Income Tax Calculator and Refund Estimator 2025-2026 Estimate your 2026 tax refund or bill using our free income tax calculator. Enter your income, age and filing status to get started. Sabrina Parys How Federal Tax Brackets and Rates Work Contrary to popular belief, your income isn't taxed at just one rate. The U.S. has a progressive tax system, meaning different portions of your income get taxed at different rates. 2 By Sabrina Parys, Tina Orem 2025 Tax Brackets and Federal Income Tax Rates The 2025 federal income tax rates range from 10% to 37% and apply to taxes due by April of this year. Find out which bracket you're in. Bella Avila 2026 Tax Brackets and Federal Income Tax Rates The IRS adjusts the federal tax brackets annually to keep pace with inflation. The 2026 tax brackets apply to taxes filed in 2027. Bella Avila Standard Deduction for 2025 and 2026: Amounts, When to Take The standard deduction is a popular way for taxpayers to reduce their taxable income. Your deduction amount depends on your age, filing status and other factors. 2 By Sabrina Parys, Tina Orem Capital Gains Tax: Long and Short-Term Rates for 2025-2026 Capital gains are the profits from the sale of assets. They can be subject to short-term or long-term tax rates. 2 By Sabrina Parys, Tina Orem 25 Popular Tax Deductions and Tax Breaks for 2025-2026 A deduction cuts the income you're taxed on, which can mean a lower bill. A credit cuts your tax bill directly. Learn more about common tax breaks and write-offs — and how to claim them. 2 By Sabrina Parys, Tina Orem Federal Income Tax Calculator and Refund Estimator 2025-2026 Estimate your 2026 tax refund or bill using our free income tax calculator. Enter your income, age and filing status to get started. Sabrina Parys How Federal Tax Brackets and Rates Work Contrary to popular belief, your income isn't taxed at just one rate. The U.S. has a progressive tax system, meaning different portions of your income get taxed at different rates. 2 By Sabrina Parys, Tina Orem 2025 Tax Brackets and Federal Income Tax Rates The 2025 federal income tax rates range from 10% to 37% and apply to taxes due by April of this year. Find out which bracket you're in. Bella Avila 2026 Tax Brackets and Federal Income Tax Rates The IRS adjusts the federal tax brackets annually to keep pace with inflation. The 2026 tax brackets apply to taxes filed in 2027. Bella Avila Standard Deduction for 2025 and 2026: Amounts, When to Take The standard deduction is a popular way for taxpayers to reduce their taxable income. Your deduction amount depends on your age, filing status and other factors. 2 By Sabrina Parys, Tina Orem Capital Gains Tax: Long and Short-Term Rates for 2025-2026 Capital gains are the profits from the sale of assets. They can be subject to short-term or long-term tax rates. 2 By Sabrina Parys, Tina Orem 25 Popular Tax Deductions and Tax Breaks for 2025-2026 A deduction cuts the income you're taxed on, which can mean a lower bill. A credit cuts your tax bill directly. Learn more about common tax breaks and write-offs — and how to claim them. 2 By Sabrina Parys, Tina Orem