Do you file your taxes online? According to a recent PCMag survey on tax security, those who do e-file their taxes are slightly in the majority. Our survey of 3,499 people also unveiled some common concerns about the privacy and protection of personal data when fulfilling their annual tribute to Uncle Sam electronically. We explore all the survey results and trends in subsequent sections.
How Do Americans File Their Taxes?
After adjusting for invalid responses, just over half (51 percent) of respondents plan to e-file their taxes this year. The remaining portion (49 percent) said they would use another method. We found similar (but relatively low) rates of e-filers among different age groups. For instance, 19 percent of both the 45-54 and 25-34 age groups file their taxes online, along with 18 percent of members from the 35-44 and 55-64 cohorts.
So, which online tax software do online filers (1,002 respondents out of the original pool) use? A clear majority of respondents (58 percent) use TurboTax, which earned an Editors’ Choice distinction this year. H&R Block Deluxe was the next most popular pick (14 percent), but a significant number of those surveyed (12 percent) said they don’t plan to use any tax software to file their taxes online. TaxAct Deluxe+ (5 percent), Credit Karma Tax (4 percent), and FreeTaxUSA Deluxe (3 percent) round out the list, with Other winning (4 percent) of the vote overall.
Since the 1040 changed again for the 2019 tax year, it may be easier to use one of these up-to-date services than to fret over variations in the paper forms.
Free vs. Paid Tax Services
Despite the relatively wide distribution of chosen tax software, the majority of respondents (64 percent) believe that paid tax software is more secure than free tax software, with 36 percent indicating the opposite. Notably, the 18-24 age group is the only group in our survey that trusted paid and free tax software equally. Keep in mind that you may be eligible to file your federal (and potentially your state) taxes online for free through the IRS’s Free File program.
Our resident tax and finance expert, Kathy Yakal, reached out to all of the tax companies that offer services we’ve reviewed to clarify whether there is a difference between the paid and free versions of their product. Here’s what we heard back:
“No, there are no differences when using TurboTax. Security is built into everything we do and TurboTax works hard to safeguard your information no matter which version you are using.”
“These measures [see response below about practices] are applied consistently.”
“There is no difference in the level of security between our free and paid products. TaxAct’s security measures ensure all tax filers’ information is secure and remains private.” – Mark Jaeger, TaxAct’s Director of Tax Development
“There is no difference between the free versions and the paid versions. We value the security of all TaxSlayer customers’ personal information regardless of which version of the product they use.” – Michael Blache, TaxSlayer CISO
Credit Karma Tax
“No, we take data security very seriously. All of the services we offer are free, and all of them are protected by multiple layers of security including encryption, application firewalls, and even adaptive machine learning tools to detect attacks. We have a team of full-time security engineers who work with our product teams from the start to make sure every product and service we offer to our members is designed securely.”
Is My Personal Data Secure When I E-file?
Our survey takers largely trust that their taxes are encrypted once they are filed online. 68 percent of respondents assume this to be the case, while 32 percent do not. Per our findings, of those who do believe that tax companies encrypt data, the 45-54 age group had the highest percentage (20 percent) of respondents who trusted this encryption. Of those who do not believe that tax companies encrypt their data, the 25-34 age cohort trusted these companies’ encryption practices the least. If you don’t trust a tax company to keep your data safe, consider alternative ways to file. In any case, everyone should protect their locally stored tax documents with encryption software or an online backup service.
Most e-filers from our survey think it is at least somewhat likely for their personal data to be compromised by using tax software. Although encryption is certainly an important step towards protecting data, tax season scams and data breaches of financial institutions are both valid reasons for concern. Seven percent of respondents said it was very likely, 13 percent said it was likely, and 40 percent considered it somewhat likely. By comparison, 19 percent said it was very unlikely and 21 percent said it was unlikely.
Different age groups were not in agreement on this topic, either. For instance, respondents in the 45-54 age group were the most convinced of their data being compromised (36 percent of this group said this was very likely), while the 25-34 cohort included the highest percentage (21 percent) of those who said this was very unlikely. This potentially points to greater concern over scams and breaches (as opposed to encryption), since the group (45-54 year olds) who most trusted a tax company’s encryption practices were most convinced that their data would be compromised.
Here’s what we heard back from the tax companies when we asked about encryption practices and the possibility of data interception during the filing and submission process:
“It is standard for TurboTax to encrypt any of your data that we store, and when we electronically send your return to the IRS or state agencies, we use SSL encryption that exceeds IRS standards.”
On whether data interception is possible: “No not when using TurboTax, because we encrypt your data so that even if someone somehow had access to your hard drive they would not be able to unlock and read the information. Plus TurboTax has additional safeguards every time you sign in like: Multi-factor authentication…Touch ID…Login and device activity…[and] Auto email notifications.”
“H&R Block takes data security very seriously. We combine several layers of security technologies and policies to safeguard sensitive information, which includes industry standard encryption while clients share their data with us and when it is sent electronically to the IRS.”
“TaxAct abides by industry-recommended security practices across all of our product offerings. A person’s tax file is compressed and encrypted while the customer is completing it. It’s also encrypted after the eFile submission step. The security we have in place is designed to prevent unauthorized access from the point a person starts a return to the time the IRS receives it.” – Mark Jaeger
“Yes, the tax return is encrypted as it is being created and while it is stored on our systems. Additionally, the tax return is encrypted in transit to the IRS. If a customer chooses to download a copy of the tax return for their records, the PDF is encrypted while being downloaded but is not encrypted when they save it on their computer. Customers are encouraged to safeguard any copies they have downloaded from our website and to only access their TaxSlayer accounts from computers they trust.” – Michael Blache
“Security is one of Credit Karma’s top priorities, and that extends to Credit Karma Tax. For us that means all tax return data is encrypted “at rest” — when you are not accessing your tax return and the data is stored on our servers — as well as when the data is in transit from your computer to Credit Karma, or from Credit Karma to the IRS.”
“Encryption keeps the data safe from snooping on our systems or when sending it to the IRS. The main security risk our members face is when they reuse passwords across sites, so that if one of those sites is attacked, hackers now have a password that they can use to impersonate the member on other sites. We encourage our members to use unique passwords for each site, and especially for Credit Karma. As an extra layer of protection, Credit Karma also secures tax accounts using text message to a verified, U.S.-based phone number, and also supports members using MFA (multi-factor authentication) tools such as Google Authenticator.”
“Yes, all customer data is encrypted in transit and in storage. There is no point between starting a return, and the IRS receiving it, that someone could intercept the data.” – Matt Gause, Director of Marketing
Tax Data Markets
Our survey respondents are split on whether tax software companies buy and sell user data. Still, all e-filers (and general consumers) should be aware of how data monetization is a real and present danger to their privacy. In our survey, 55 percent of people believe that tax software companies do not sell user data, as opposed to 45 percent who do. Those surveyed are less trusting of these companies when it comes to them buying information from other sources. 56 percent of our survey participants believe that tax companies do buy browsing data from other companies, while 44 percent don’t. One way online tax services can clarify this perception of data handling is to use plain language in their privacy policies.
Most People E-file From Home, But More Should Use a VPN
The vast majority of survey takers (76 percent) file their taxes online from home. The next most popular choices were from a non-home workplace (9 percent) and a family or friend’s home (6 percent). Rounding out the bottom of the responses were public establishments (such as a school or library) at 3 percent, commercial establishments (such as a café or hotel) at 2 percent, a rented work or living space (such as Airbnb or WeWork) at 1 percent, and at an Accountant (1 percent). Two percent of respondents don’t file their responses from any of those locations. The broader availability of mobile tax preparation apps makes it easier to complete your taxes wherever, but based on our results, people are still most comfortable e-filing their taxes at home.
79 percent of respondents do not use a free public network, which is an excellent preventative step against the possibility of an attacker intercepting your data on an open network. The less good news is that of those 21 percent of respondents who use public networks, a little fewer than half (48 percent) use a VPN.
Also disappointing is our finding that only 37 percent of e-filers use a VPN when filing taxes online, whereas 63 percent do not. Although home networks are usually safer than public ones, you can still benefit from using a VPN at home. You shouldn’t discount risks posed by insecure IoT devices or poorly configured routers.
For more tax coverage, check out our features on how to maximize your tax returns and what to do if you need to report cryptocurrency earnings. We also have tips for all of you last-minute e-filers.