Theme 6: Understanding the IRSLesson 3: Methods of Filing

Educational Standards

State and National Standards

Time Frame

One to three hours

Curriculum Area(s)

• Civics/Government
• Technology
• Family and Consumer Sciences
• History/Social Studies

Purpose

To help students understand the methods of filing tax returns and the advantages of preparing and transmitting tax returns electronically

Objectives

Students will be able to

• identify the different methods of filing tax returns.
• describe the advantages of filing tax returns electronically.
• identify the return method that is most appropriate for certain taxpayers.

Background

To prepare a tax return means to complete all of the forms and schedules needed to compute and report one's tax liability. Tax liability is the amount a taxpayer must pay through withholdings, estimated tax payments, and payments submitted when the tax return is filed. A tax return can be electronically prepared with tax preparation software, or it can be prepared manually on paper forms. A taxpayer can request a Direct Deposit of his or her refund into a savings or checking account.

Electronically preparing and sending, or transmitting, tax returns has many advantages. Benefits include increased accuracy, faster refunds through direct deposit, and the ability to prepare and file federal and state returns simultaneously. In addition, electronic preparation is environmentally friendly because it is paperless. Taxpayers can create a Personal Identification Number (PIN), which ensures that electronically submitted tax returns are authentic and that the taxpayer, and not someone else, submitted the tax return.

Two ways to transmit tax returns electronically are: by personal computer with online filing and through a tax professional who is an electronic return originator (ERO).

Key Terms

Direct Deposit

This allows tax refunds to be deposited directly to the taxpayer's bank account. Direct Deposit is a fast, simple, safe, secure way to get a tax refund. The taxpayer must have an established checking or savings account to qualify for Direct Deposit. A bank or financial institution will supply the required account and routing transit numbers to the taxpayer for Direct Deposit.

electronic filing (e-file)

The transmission of tax information directly to the IRS using the Internet. Electronic filing options include (1) Online self-prepared using a personal computer and tax preparation software, or (2) using a tax professional. Electronic filing may take place at the taxpayer's home, a volunteer site, the library, a financial institution, the workplace, malls and stores, or a tax professional's place of business.

electronic preparation

Electronic preparation means that tax preparation software and computers are used to complete tax returns. Electronic tax preparation helps to reduce errors.

Electronic Return Originator (ERO)

The Authorized IRS e-file Provider that originates the electronic submission of an income tax return to the IRS. EROs may include Certified Public Accountants (CPAs), tax attorneys, IRS-enrolled agents, and tax preparation businesses. Only EROs can prepare tax returns and then transmit them electronically. Some EROs charge a fee for filing returns electronically, some incorporate the cost into their preparation fee, and some do not charge for this service.

Federal/State e-file

A program sponsored by the IRS in partnership with participating states that allows taxpayers to file federal and state income tax returns electronically at the same time.

file a return

To mail or otherwise transmit to an IRS service center the taxpayer's information, in specified format, about income and tax liability. This information-the return-can be filed on paper or electronically (e-file).

IRS e-file

The use of automation to replace most of the manual steps used to process paper returns. The information on a tax return is transmitted, or sent electronically, to an IRS computer, where it is automatically checked and processed. Refunds can go into the taxpayer's savings or checking account by Direct Deposit. Electronic filing is faster and more accurate.

Personal Identification Number (PIN)

This allows taxpayers to "sign" their tax returns electronically. The PIN ensures that electronically submitted tax returns are authentic. Most taxpayers can self-select a PIN.

refund

Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

tax liability (or total tax bill)

The amount of tax that must be paid. Taxpayers meet (or pay) their federal income tax liability through withholding, estimated tax payments, and payments made with the tax forms they file with the government.

tax preparation software

Computer software designed to complete tax returns. The tax preparation software works with the IRS electronic filing system.

transmit

To send a tax return to the IRS electronically. Tax returns prepared on paper can be sent through the mail.

Volunteer Income Tax Assistance (VITA)

This provides free income tax return preparation for certain taxpayers. The VITA program assists taxpayers who have limited or moderate incomes, have limited English skills, or are elderly or disabled. Many VITA sites offer electronic preparation and transmission of income tax returns.

Opening the Lesson

Distribute Info Sheet 1: Key Terms to students. Ask volunteers to explain in their own words what "filing a return" means. (Answers will vary.)

Developing the Lesson

Ask students the following question. List their answers on the board in two columns: Preparation and Transmission.

• What do you think the benefits might be of using a computer to prepare and transmit tax returns? Preparation: Increased accuracy, ease of use, prepare federal and state taxes simultaneously; Transmission: Fast refunds with direct deposit, pay amount due with electronic funds withdrawal or pay by credit card, secure, electronic acknowledgement, file federal and state taxes simultaneously, paperless, avoid lost or delayed returns, avoid trips to the post office

 

Distribute Info Info Sheet 2: Benefits of Electronic Preparation and Transmission to students. Have volunteers add to the list on the board any benefits that were not mentioned.

Explain that there are two ways to file a tax return electronically: by personal computer using online filing, and through a tax professional. Ask any students with experience using one of these methods to share their experiences with the class.

Concluding the Lesson

In a class discussion, have students tell which electronic tax filing option seems best for them. Have students explain their choices.