If you're due a federal tax refund, your preparer might suggest that you file your taxes electronically. Instead of mailing your return, you can have it zapped, computer to computer, from a private tax-filing center directly to the Internal Revenue Service. You get your refund within three weeks rather than the six to eight weeks it normally takes.
Why the speed? Electronic filing saves the IRS from processing your taxes by hand. So the refund claim is handled faster.
From your point of view, however, the question is whether electronic filing is worth its cost. You might pay $20 to $40 in order to pick up three to five weeks on your refund check. It's a lot cheaper to buy stamps.
Returns can't be filed through your own home computer. You have to use a service formally approved by the IRS. Last year, that generally meant accounting firms and commercial tax preparers such as H & R Block. But banks and credit unions are increasingly getting into the act.
"By the end of this century," says Stephen Guido, president of Electronic Filing Centers (EFC) in Farmingdale, N.Y., "you'll routinely be able to walk into a bank, file your return, and pay your taxes or pick up a refund."
EFC's clients include 550 branches of the FleetNorstar bank in five states, 250 branches of the Bank of America in the San Francisco area, and credit unions for Hughes Aircraft and TRW. Taxpayers drop their returns at the bank or credit union; each night they'reshipped to a processing center, where they're entered into a computer and checked for accuracy.
Mr. Guido says he finds errors on 23 percent of the forms. Among the most common: using the wrong tax table and putting down the wrong number of dependents. A married taxpayer with three children may think he has four dependents when he actually has five (himself included).
Errors like this will also be caught by the IRS computers, so you don't lose out if you file by mail. But correcting the error solely through the IRS delays your refund.
Sometimes, computer-filing services will also pick up a deduction you're entitled to and didn't claim.
Among the banking institutions that offer electronic filing, some require you to open an account and have your refund wired to it. Others will file for non-customers.
At H & R Block, electronic filing costs about $25. Block discourages electronic filing for people with refunds smaller than $200, because of the cost.
Block also offers "refund anticipation loans" through participating banks. You get a check within three to six days for your refund minus the tax-filing and loan charges. "You don't feel like you're getting a loan, you're just getting a tax refund," says President Thomas Bloch. But it's still a loan. The bank gets repaid automatically when the government sends the refund.
The cost of the refund-anticipation loan: a flat fee in the area of $29. On small loans, that's a pretty stiff charge.
Few banks that offer electronic filing give refund anticipation loans, Mr. Guido says. Some credit unions do, for a fee of $5 to $10. Personally, I'd rather save the money and wait a little longer for the refund.
Refund returns can be filed electronically from all states. A pilot project for people who owe further taxes is being run in nine states: Georgia, Indiana, Kentucky, Michigan, Ohio, West Virginia, Iowa, Utah and Washington. There, you can file electronically, then mail in Form 9282 with the taxes due.
Last year, more than 4.2 million returns came in electronically, said Gail Ellis, an IRS spokeswoman. This year, the government expects in excess of 6 million. But why pay the extra price? I'm settling for a stamp.