Like most bureaucratic organizations in the world today whose function involves a large amount of paperwork, the Internal Revenue Service (IRS) is now actively encouraging people to file their annual income tax returns electronically. This makes the annual filing faster and easier, ensures that the return is received on time and means it can be processed sooner, resulting in faster refunds or settled bill amounts for taxpayers. The IRS now offers three main ways to file electronically, though each has its own terms and conditions. Further, there are some types of filing – like claiming the making Home Affordable Tax Credit – that have to be done on paper.

The Free File program offered by the IRS offers two distinct services: Traditional Free File and Free File Fillable Forms. Traditional Free File is a partnership between the IRS and the Free File Alliance LLC that provides free tax preparation and filing for people with an adjusted gross income (AGI) under a specific amount. The qualifying amount for Traditional Free File differs each year, but in 2009 is for people with an AGI under $57,000. Free File Fillable Forms offers a range of the most popular tax forms online that can be filled out and filed electronically. Unlike Traditional Free File, there is no tax preparation assistance provided, but there are also no limits on who can use this feature to file their taxes as long as the relevant forms are available.

The IRS e-File program is actually carried out by tax preparers, non-profit tax assistance organizations, and included in many tax preparation software packages available on the retail market. Almost all the major filing types can be e-filed: personal returns, small business returns, large corporate returns as well as returns for charities, non-profits and people paying excise taxes. The e-file option has been the most successful electronic filing option and is now widespread. Most tax preparers will charge a small fee for e-filing a return, but there are usually free options available such as the Free File program described above, people e-filing with the assistance of non-profits, and those who own their own tax filing software like TurboTax.

The third option is the Electronic Federal Tax Payment System (EFTPS), which is commonly used by companies that choose to make regular payments to the IRS throughout the year. Though it is more popular for companies and entities, individuals are also welcome to use the system and some do. The EFTPS system allows business owners to make regular payments to the IRS weekly, monthly or quarterly and today almost ten million taxpayers are enrolled in the system.  The EFTPS system also allows people to make their regular payments – usually based on the estimated amount owed as determined by Form 1040ES – over the telephone as opposed to online. There are additional features included in the program as well, such as automatic bulk payments for employers sending in payroll taxes regularly.

Filing electronically is much better than manual filing in almost every respect and the IRS is actively encouraging taxpayers to use this option. It is faster and easier for both the IRS processors as well as for the taxpayer and is usually available for free or at a small nominal cost (which can, incidentally, be deducted as a Miscellaneous Expense).

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