It is often cheapest for an individual to e-file their state tax returns directly with the state department of revenue. All states that impose individual income tax accept e-filed tax returns, and the annual number of electronically filed state tax returns continues to rise as consumers and state taxing authorities place increased value on electronic filing.
History of State E-filing
State e-filing of income taxes first began in the early 1990s. The number of state tax returns being electronically filed has risen dramatically over the past few years, and is expected to increase even more. Some states have placed mandates on tax preparers, making it mandatory for preparers to e-file the state returns of clients. This is likely contributing to the increase, but consumers benefit from e-filing as well.
Popularity of E-filing
Electronically filing is quickly becoming a popular method for both consumers and state taxing authorities. Consumers enjoy the benefit of receiving check and direct deposit refunds quicker, and reducing the risk of basic processing delays. Consumers can also pay balances electronically with a debit or credit card. State taxing authorities note that the e-file program reduces errors and cuts down on resources used for processing paper documents and archiving.
Free State E-filing
The cheapest way to e-file your state taxes is to e-file directly with the state. Most states offer free e-file services regardless of your adjusted gross income. If you receive free e-filing for the IRS from software products, but are charged for state filing, file and print just your IRS return. If your state offers free e-filing to all residents, you can use information from your federal return to file with the state for free. Similarly, if you hire a paid preparer, verify if state filing is included with your preparation fees. You may be able to save money by asking the preparer to only file with the IRS if there are extra fees for state filing.
Cheap State E-filing
Some states do not offer free e-filing for all residents, and may put income, age or filing status restrictions on free filing programs. If this is the case, shop around for the best rates. The state fees may be lower than software programs, or you may be able to get free IRS filing and pay the software company to file with the state. Most software companies charge between $15 and $30 for state e-filing.
If you do not e-file your state tax return by the deadline (including extension time), you might have to file a paper return. Currently, most software and Internet filing systems are only designed to accept the current year's return electronically. The deadline for filing an individual income tax return is the same in most states as it is with the IRS -- April 15. If you file an extension, check with your state to see how much extra time to file is granted.
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