FreeTaxUSA is a tax software product that provides free tax returns that, unlike competing websites, cover nearly every tax situation. They also provide reasonably priced upgraded software that includes free live chat and audit support.
The company is one of several tax software products listed on the IRS’ Free File page. Not only that, but the site has been a part of the IRS’ free file list since the list started in 2001.
According to the company’s About Us page, 2001 was the year the site launched under the leadership of a CPA and a team of software developers. The company is owned by TaxHawk, a free filing site that seems to offer the same exact services as FreeTaxUSA but isn’t listed on the IRS’ free filing page.
Is FreeTaxUSA the right tax software for you? We want to find that out, which is why we conducted in-depth research of this product as well as other tax software to find out what FreeTaxUSA offers and how its features and pricing compare to competing free-filing site Credit Karma Tax.
Our review is organized into the following sections:
- Pricing and features
- Who can file
- Who can’t file
- Comparison to Credit Karma Tax
We’ll finish up with a quick section on the software’s pros and cons, then link to our reviews of other tax sites if you’re interested in doing more research before making your final decision.
FreeTaxUSA’s Pricing and Features
Tax software typically has multiple tiers of services tailored to fit the needs of particular tax situations.
For example, TurboTax provides five different pricing tiers; each one is a little more complex than the previous one. Typically, the tax returns that require the most paperwork are the ones that cost the most.
FreeTaxUSA basically obliterates that notion by providing free returns for pretty much every tax situation the average American may find themselves in.
We’ll list a few of the common tax situations that are included in the software’s free version.
Freelancers and Self-Employed Can File
Freelance workers and the self-employed tend to have a specific set of tax paperwork they have to file.
That paperwork is divided up into two types: schedules and forms.
Schedules are worksheets that add and subtract the dollar amounts you get from forms. Forms calculate specific deductions and credits to generate the dollar amounts you put on schedules.
Freelancers and small business owners file a Schedule C (Profit and Loss from Business), a worksheet that includes calculations from the ever popular Form 8829, the one you use to calculate your home office deduction.
FreeTaxUSA also accepts all the various 1099’s that a freelancer would receive, including 1099-MISCs for contractor payment and 1099-Ks for electronic payments from freelancing sites like Upwork.
Homeowners Can File, But Shouldn’t
Taxpayers who own homes get their own special set of tax deductions and credits that are different than what freelancers would file.
For example, while a freelancer’s forms and schedules focus on their business expenses and work-related deductions, a homeowner’s forms and schedules tend to focus on mortgage deductions and credits.
According to their list of accepted forms, FreeTaxUSA accepts the 1098, which is a popular form used to get deductions from interest paid on your mortgage.
However, after doing a review of software’s list of accepted forms, we found a glaring omission for homeowners: Form 8396.
This form is what homeowners use to claim tax credits for the interest they’ve paid. This form is different from the 1098 because deductions and credits are two separate things.
A deduction is what you subtract from your yearly income before your taxes are calculated, while credits are what you get to subtract from your tax payments after your taxes are calculated.
So, you can see why the 8396 is a crucial form; it can save homeowners hundreds or thousands of dollars in taxes depending on how much mortgage interest they pay each year.
For comparison’s sake, Credit Karma Tax’s free tax filing includes both the 1098 and the 8396.
Pro tip: The Schedule A is accepted, too. Use it to deduct property taxes.
Investors Can File
The other major category of tax returns are returns that include investments. Like the previous two situations, investments require their own special set of schedules and forms.
The most common forms you’ll see are a series of 1099s that include 1099-DIV, 1099-R and 1099-INT.
These various forms are what you’ll use to report income you get from capital gains, stock dividends and interest payments you receive from CD’s, high-yield savings accounts and similar financial accounts.
In addition to these forms, you can file the 8814 (investment income for children) as well as the Schedule A, which provides you the chance to deduct investment expenses.
Everyone Else Can File, Too
If you’re a W-2 worker with a simple tax return, you’re eligible to file for free with FreeTaxUSA. The list of other forms and schedules they accept is impressive. Here are just a few examples of the popular paperwork they accept:
- Education deductions and credits: 1098-T, 1098-E, 8917, teacher expenses
- Health expenses: Schedule A medical expenses, Form 8899
- Other situations: Alimony, charitable donations, depreciation, job expenses, farming income, and expenses
Who Can’t File for Free on FreeTaxUSA
FreeTaxUSA has a short list of forms that aren’t accepted and because those forms are linked to certain tax situations or jobs, the list will end up excluding the following occupations and/or situations:
- Expats earning foreign income
- Nonresident aliens
- Business owners who want deductions for Archer medical savings accounts
- Those whose children earned more than $2,100 from investment income
Forms 6198, 6252 and 8801 are also not accepted.
Pro tip: The software imports 2016 tax returns from other sites but only accepts imported 2015 returns from TaxAct, H&R Block and TurboTax.
FreeTaxUSA’s Deluxe Version and State Taxes
If you want to upgrade your FreeTaxUSA experience and get access to live chat, priority support and audit assist, you can pay $6.99 for their top-tier services.
The key here is the audit help. FreeTaxUSA won’t represent you in hearings with the IRS, but they will write a letter on your behalf and walk you through the paperwork process.
Keep in mind that they only offer assistance with federal taxes that are audited, not state taxes.
Though federal taxes are free, you’ll have to pay $12.95 if you want the software to file your state tax return.
FreeTaxUSA vs. Credit Karma Tax
FreeTaxUSA provides free filing for all kinds of tax situations and, in that sense, it’s on par with Credit Karma Tax, the only other site we’ve reviewed offering free filing for nearly all tax situations.
Even though these two sites are nearly identical in the services they offer, they have some distinct differences that can affect certain taxpayers.
We dug into the forms and schedules accepted by both sites and came up with a list of forms Credit Karma Tax accepts that FreeTaxUSA doesn’t:
- W-4: Employee’s withholding allowance certificate
- Form 3468: Investment credit
- Form 4972: Tax on lump-sum distributions
- Form 6198: At-risk limitations
- Form 6252: Installment sale income
- Form 8396: Mortgage interest credit
- Form 8586: Low-income housing credit
- Form 8801: Credit for prior-year minimum tax
- Form 8824: Like-kind exchange
- Form 8853: Archer MSAs and long-term care insurance contracts
- Form 8859: Carryforward of D.C first-time homebuyer credit
- Form 8910: Alternative motor vehicle credit
- Form 8919: Uncollected social security and Medicare tax on wages
- Form 5884: Work opportunity credit
- Form 6478: Biofuel producer credit
- Form 8834: Qualified electric vehicle credit
After reviewing these forms, we’d say Credit Karma tax is the better choice for certain consumers.
For example, the alternative motor credit is given to people who bought the following cars before 2016:
- Mercedes-Benz 2012 F-Cell
- Honda 2012 FCX Clarity Fuel Cell Vehicle
- Honda 2011 FCX Clarity Fuel Cell Vehicle
- Honda 2010 FCX Clarity Fuel Cell Vehicle
- Honda 2009 FCX Clarity Fuel Cell Vehicle
- Honda 2008 FCX Clarity Fuel Cell Vehicle
The qualified electric vehicle credit is good for consumers who bought an electric or hybrid vehicle that plugs in. This credit is actually a big deal, as you’ll get up to a $7,500 tax credit for owning the car.
The tax credit covers cars from Honda, Toyota, Tesla, and a few other manufacturers. The full list is available on the Department of Energy’s website.
It’s important to reiterate that Credit Karma Tax also accepts Form 8396 for mortgage interest credits. Another plus? State taxes are free, too.
FreeTaxUSA’s main advantage is that you can purchase audit assist and better priority customer service for $6.99.
The drawback is that you have to pay $12.95 for state taxes, whereas Credit Karma Tax does state taxes for free.
In our opinion, the better site really has to do with whether or not you fall into some of the exceptions we listed above.
If you can claim a mortgage interest credit, we believe Credit Karma Tax is the way to go.
If you want the piece of mind knowing that you have audit assist and can ask tax-related questions as you file your taxes, then, in our opinion, FreeTaxUSA is the better choice.
If you find yourself in a position where both software would work, you aren’t concerned about audits and you have to file a state tax return, Credit Karma Tax is the best choice because your return will be free.
The Final Word About FreeTaxUSA: Pros and Cons
In our opinion, FreeTaxUSA has one major strength: it’s free. Credit Karma Tax is the only other major website who offers free filing for nearly every situation.
In a more focused sense, we think the software has the edge on Credit Karma Tax because you can purchase an upgrade that gets you audit assist and live chat.
Whether or not you need the audit assist or chat is up to you. In our article on IRS audits, we found that each year less than 1% of taxpayers are audited.
The downside to the tax software is that you can’t get mortgage interest credits. According to the Census Bureau, more than 64% of Americans own homes. We see potential conflicts here.
Also, you have to pay for your state tax return, a distinct disadvantage when compared to Credit Karma Tax’s free filing.
However, there’s enough good going on between FreeTaxUSA and Credit Karma Tax that we think both sites could be a great fit for you and save you a considerable amount of money.
If you’re more comfortable going with a paid website, then read through our comparison of the four major tax software companies. We provide specific, actionable tips and observations about TurboTax, H&R Block, TaxAct, and TaxSlayer.
Totally free (no fee to file state taxes, either) - very satisfied
I tried FreeTaxUSA after the TaxAct website, which I used last year (2017 tax year), seemed to bog down on April 14-15. I was almost done with my taxes, so this was pretty frustrating.
FreeTaxUSA calculated exactly the same amount of tax owed, at both the federal and state level, as did TaxAct. So I'm confident that their calculations are correct, and I won't have the problems that Marc K. from New Jersey did - being fined by the state for an inaccurate filing. Also, FreeTaxUSA did NOT charge me to calculate or electronically file my North Carolina tax return. I'm not sure why the author of this article reported that they charge "$12.95 if you want the software to file your state tax return." Maybe my total income is so low that I qualify for a special offer?
One important caveat is that my taxes are both a bit unusual and pretty simple: My only sources of income are dividend income from a money market account and retirement income from rolling over money from a traditional IRA to a Roth IRA. FreeTaxUSA seems to have handled both of those things just fine. Also, I don't own a home, which is a major issue identified in the article. And, for what it's worth, I also had Obamacare, which it handled fine.
Another person complained about being nickel-and-dimed, citing being charged to print copies of her returns. This was not my experience. I was able to successfully download electronic copies (PDF files) of both federal and state returns, although I didn't bother to print them out. I got everything I wanted to do done, at a total cost of "free." Totally free. Honestly, it leaves me wondering how they make their money, and I thought of donating some money to help keep them in business! TaxAct charged me $32 last year, and was going to charge me over $50 this year, so I'd happily have paid $10! Maybe they make money by selling audit protection?
As for FreeTaxUSA not representing you in the case of an audit... Jeez, what do you want for "free?" I'm just happy that they let me use their software for free! And I'm doubtful that many people will get fined for inaccurate filings, although I suppose that's a small risk. Again...will you take that risk, in order to save a hefty charge? In the long run, I think small risks like this are worth taking, since the odds are in your favor. Maybe you can protect yourself from this risk by buying audit protection? I don't even remember being prompted to buy it!
If I have any issues, I'll try to remember to come back and update my review.
Bottom Line: Yes, I would recommend this to a friend
3 out 3 people found this review helpful
Wrong IRA Calculation
The program didn't have a provision for correcting the taxable amount on my IRA distribution. Even when I entered the correct taxable amount, the program still used the total distribution amount for calculating my tax due. I had to "dummy" the total distribution amount in order to make the tax calculations come out correct. The difference in my tax liability was almost $1600.
Also, the program may be free to use and free to file with the IRS; but they nickel and dime you to death with things like audit protection and printed copies of your tax return. NO thanks!
Bottom Line: No, I would not recommend this to a friend
10 out 12 people found this review helpful
This software has serious integrity issues. I received an audit from the state, and upon looking deep, I found that it was the result of this software incorrectly using an incorrect amount. I was hugely penalized from New Jersey state along with three years of interest owed for understatement.
Their audit assistance is also a sham; they simply tell you what the issue is, which anyone with basic education would understand from the audit report.
They did not take any responsibility for the calculation error despite my clearly telling them what the issue is.
I would not recommend this software to anyone for tax filing, they are not free first of all; you have to pay for audit assistance which is useless when reality hits and more importantly, there are calculation errors, which will land you into trouble.
For 2018 I am switching to another software, at least there is a peace of mind.
Bottom Line: No, I would not recommend this to a friend