DEFINITION of Electronic Filing - E-File

Electronic filing is the process of submitting tax returns over the Internet using tax preparation software that has been pre-approved by the relevant tax authority, such as the IRS or the Canada Revenue Agency. E-filing has manifold benefits which have made this system of tax preparation increasingly popular in recent years; the taxpayer can file a tax return from the comfort of his or her home, at any convenient time, once the tax agency begins accepting returns.

BREAKING DOWN Electronic Filing - E-File

Electronic filing, or e-filing, saves the tax agency time and money because the tax data is transmitted directly into the agency's computers, significantly reducing the possibility of keying and input errors. Taxpayers can file their returns directly on the Internal Revenue Service (IRS) website, using IRS Free File, if their adjusted gross income for the tax year is $66,000 or less. While the IRS has partnered with many companies to provide electronic filing to individuals and businesses, it does not endorse or approve any particular software for IRS e-file.

A taxpayer also has the option of filing the return himself using tax preparation software with e-filing properties, or can hire the services of tax professionals who also use the software to file an individual’s or business’ tax. A benefit of e-filing is that the tax filer receives a confirmation or rejection notice within 24 hours of transmitting the electronic documents. The confirmation is proof that the documents have been received and is in process, while the rejection is notice to the tax payer that his or her return has not been accepted by the IRS. The rejection notice will include information on what needs to be corrected on the return so that it is acceptable. In addition to the prompt confirmation notice, since e-filed returns can be processed much faster than paper returns, the taxpayer can generally expect a faster tax refund, if applicable.

The IRS recommends that taxpayer e-file their taxes themselves only if they are comfortable doing their own taxes. Electronic filing is not for everyone though; taxpayers who have not been approved to use this system must file their tax returns by paper. Examples of people who are not eligible for e-filing include individuals who are: