Online tax preparation may no longer be free

NEW YORK — If you file your taxes online, your free lunch may be over.

Last year, anyone who filed their income taxes through the Internal Revenue Service could find a preparer who would do it free of charge through Free File, the IRS's online tax preparation program. This year, the IRS is closing the window to taxpayers who make more than $50,000. Depending on the service provider you choose — H&R Block, TurboTax, TaxAct or others — you may face lower income limits and even age requirements.

The main reason for the new cap is economic. When Free File started in 2003, most companies imposed income requirements, in line with the program's goal of helping lower-income people file their taxes electronically.

In an effort to gain market-share, however, many companies last year offered free filing to anyone, regardless of income. One was TurboTax, a product of Intuit Inc. Companies that started the filing season last year with income requirements — including H&R Block Inc. and OLT.com — lifted those requirements within a few days to compete.

"It became a free-for-all," said Denise Sposato, a spokeswoman with H&R Block.

"It had started looking like Free File was going to destroy the industry," said the IRS's Bert DuMars. DuMars, director of electronic tax administration, spent months discussing a possible solution with vendors before settling on the new income requirements.

The new $50,000 income cap will be adjusted annually. The main goal is that Free File services 70 percent of the taxpayer population; this year, that represents anyone with an income of $50,000 or less, DuMars said.

Companies are also setting their own limits within the broader IRS guidelines. H&R Block is providing the service to people with an income of $50,000 or less, and with an age restriction of 50 and under. TurboTax is only providing the free filing services to people with an adjusted gross income of no more than $28,500, or for people who were on active military duty in 2005 with income of no more than $50,000.

Refund anticipation loans, which are high interest-rate loans of taxpayers' refund amounts, also face new requirements: Companies must provide upfront disclosure fees and interests rates. One reason tax preparers had been willing to offer free filing services in part was because they hoped to make up revenue by cross-selling other products and services, like financial planning, mortgages or refund anticipation loans.