California's ReadyReturn reduces taxpayer angst for a small number

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Tax time is no fun — but in California, it’s a little easier for some people to file their state returns. That’s because there’s a free computer program run by the State of California that will fill out your tax return for you — and tell you what you owe.

It’s called ReadyReturn. As many as 2 million Californians qualify for the program – but is it worth it?

California launched ReadyReturn five years ago to help people with simple tax liabilities file state tax returns. The Franchise Tax Board uses information it gets from employers and banks — W-2 and 10-99 forms — and fills out your return for you. For free.

“Actually, I received a notification in the mail that gave me my code numbers,” said Colleen Odell.

The 25-year-old taxpayer from Sacramento tried out ReadyReturn this year. Most Californians have to check the tax board’s Web site to see if they’re eligible. But the Franchise Tax Board notified Odell directly as part of a program to spread the word about ReadyReturn.

Odell says if you’re eligible, you’re in for a treat: “It was pretty simple, as in A-B-C-D!”

Odell reviewed her state-generated ReadyReturn online, checked it against her own records, and signed off. It took 15 minutes.

“This is actually the first year that I didn’t pay somebody to perform my taxes for me.” Odell said “I actually did them on my own. And I feel confident that I was able to do it.”

Colleen Odell saved the $60 she’d usually pay for tax prep.

The Franchise Tax Board estimates ReadyReturn could save California taxpayers more than $5 million dollars in tax prep fees and software.

It saves the state money, too. Processing a paper return costs $2.50; ReadyReturn does it for 40 cents.

And it’s fast.

State Controller John Chiang promises,”You can get your refunds back in less than a week.” If you file with direct deposit.

Chiang heads up the Franchise Tax Board. He says ReadyReturn actually increases compliance because, “when you have an easy program, when your friends talk about the program, when they’re not afraid of looking at all the different numbers and you have an easy form — we have one easy form — that encourages people to file.”

Chiang says he can’t use ReadyReturn; his tax return is too complicated. It only works for single filers or head of household filers — and only if they get income from one employer. They have to take the standard deduction, and they get one tax credit — the renter’s credit. About 2 million taxpayers can use ReadyReturn — but last year, only 60,000 did.

Controller Chiang blames the stingy $10,000 ReadyReturn ad budget.

But James Maule, who teaches tax law at Villanova University, thinks Californians don’t trust it because government can’t know all the details of a taxpayer’s life that change their liabilities. He says immediately the taxpayer will look at it and ask “how do I know that they haven’t missed something? How do I know that they haven’t put something in there that doesn’t belong there? So I need to check it.”

Maule says if people check the state’s math, they might as well fill out their own tax returns. He also wonders if ReadyReturn makes taxpayers lazy. That is, will people say “well, the government did this, so it must be OK.”

Ed Black says that attitude could cost you money. He’s with the Computer and Communications Industry Association.

“The incentives are clearly there for the government to maximize revenue” Black explains, “and for the private sector to maximize taxpayer awareness of the benefits and credits that are available to them.”

Black’s Washington D.C.-based trade group includes Intuit — the Northern California software firm that developed Turbo Tax. It’s spent millions of dollars lobbying Sacramento to shut down ReadyReturn. Intuit didn’t return calls seeking comment.

UC Davis tax law professor Dennis Ventry says he thinks Intuit doesn’t want the competition.

But Ventry says, “I find it somewhat mystifying, if only because the population that ReadyReturn serves is not the population that would otherwise be running out and buying Turbo Tax, or some other tax preparation software.”

ReadyReturn users — usually young and single — may eventually get married and buy a house.

UC Davis School of Law’s Dennis Ventry says if they do, they’ll turn to tax prep software or maybe an accountant.

Ventry says until then, ReadyReturn offers California’s newest taxpayers a free way to “deduct” the midnight angst from their state tax returns.