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Lawmakers are accusing TurboTax's parent company, Intuit, of misleading the public about the real nature of its free tax-preparation program. In a letter to Intuit CEO Sasan K. Goodarzi on Monday, Sen. Elizabeth Warren and other congressional Democrats alleged that Intuit "scammed billions from taxpayers" and hired former Federal Trade Commission regulators as lobbyists "to shield its shady practices from government action."
"Intuit deliberately hid Free File from Google results, repeatedly changed names and landing pages to confuse and deceive consumers, and targeted military service members, people with disabilities, unemployed Americans, and people with student loans with upselling scams," the lawmakers wrote.
In a statement sent to CNET, an Intuit spokesperson said the company is reviewing the letter, adding that Intuit is "clear and fair with our customers and open and transparent about our advertising practices."
Read on to learn about the latest on TurboTax Free Edition, how the Biden administration and Congress have responded and what options are left for those looking to file for free.
What is the Free Filing Alliance?
Before its exit, Intuit was a member of the Free File Alliance for nearly two decades. During this time, the company, along with H&R Block and other industry leaders, aggressively lobbied Congress to prevent the IRS from creating its own free tax filing system.
In 2019, Congress passed the Taxpayer First Act, in which the IRS agreed not to create its own system as long as tax-filing corporations provided free services to qualifying taxpayers. But an April 2019 ProPublica article reported that Intuit had intentionally used misleading marketing and "dark pattern" Internet tactics to steer taxpayers away from the Free File program and toward paid products.
That December, the IRS presented a new tax filing agreement that prevented companies from obscuring free products in Internet searches and lifted the ban on allowing the IRS to create its own tax filing system. "This updated agreement is part of a larger effort by the IRS to help taxpayers meet their tax obligations," IRS Commissioner Chuck Rettig said in a press release. At the time, Intuit publicly supported the changes.
Still, only a fraction of eligible taxpayers use free services: According to the letter, while the Free File program is intended to cover 70% of American taxpayers, only 3% participated as of 2018.
Why did Intuit leave the Free Filing Alliance?
Intuit cited "limitations of the Free File program" as the catalyst for its exit, and a desire to focus on "further innovating in ways not allowable under the current Free File guidelines." According to the agreement governing the program, participating companies are restricted from marketing paid products to those using Free File services.
In addition to tax services, Intuit said it was focused on piloting programs to help customers save money, pay off debt and increase their incomes.
An Intuit spokesperson told CNET that the company is "committed to continuing to offer free tax preparation while accelerating innovation to address all of consumers' financial problems. Intuit's TurboTax Free Edition is the industry's most used free tax preparation offer and will continue to be available to more than 50 million people who file simple tax returns."
If TurboTax has a free edition, what's the difference?
In an email in July, an Intuit spokesperson told CNET that the company plans to expand the benefits of using its TurboTax Free Edition to "complete financial health in tax and beyond." According to the representative, such an extension of services was not possible under IRS Free File rules.
"TurboTax Free Edition is a different product than what TurboTax donates for free tax preparation through the Free File program," they said. "The Free File program offered by Intuit is called IRS Free File delivered by TurboTax. They are fairly similar, but the Free File program guidelines do not allow us to do things like provide our filers with a completely free of charge advance on their refund if they need money faster in order to pay bills."
Is TurboTax's Free Edition actually free?
According to the TurboTax website "TurboTax Free Edition is absolutely free." The site claims you can "file your fed and state taxes for $0," though a popup clarifies that only "simple tax returns" using IRS Form 1040 qualify.
According to the US Federal Trade Commission, however, Intuit is deceiving consumers when it calls its software "free."
In March, the FTC issued a complaint against the company, alleging about 66% of filers couldn't use the free TurboTax product in 2020 -- including gig workers with a 1099 form and those earning an income from a farm. The FTC is seeking a court order to halt Intuit from running what it calls "deceptive advertising," pointing to one ad that ran during the Super Bowl that had a disclaimer on screen while an announcer declared "TurboTax Free is free. Free, free, free, free."
"TurboTax is bombarding consumers with ads for 'free' tax filing services and then hitting them with charges when it's time to file," Bureau of Consumer Protection director Samuel Levine said in a statement.
Intuit said the allegations against it are "not credible" in a March 28 statement, adding that almost 100 million Americans have filed their taxes for free using TurboTax over the last eight years.
"Far from steering taxpayers away from free tax preparation offerings, our free advertising campaigns have led to more Americans filing their taxes for free than ever before," said Kerry McLean, executive vice president and general counsel of Intuit. "With the FTC's action, companies will be much less willing to enter into public-private partnerships with the government that benefit consumers."
What are my free tax-software options now?
A number of leading tax software providers offer no-cost tax filing services if your income level is under a certain threshold and your return is simple. Credit Karma Tax provides free state and federal filing for 2021, and H&R Block offers a free option for W-2 tax filers and those who have collected unemployment during the past year.
Despite Intuit's exit from the program, there remain a number of Free File options available to taxpayers with an annual adjusted gross income of $72,000 or less. The IRS program now includes eight participants:
And if you earn more than $72,000 per year, you are eligible to use the program's Free File Fillable Forms, electronic versions of IRS paper forms -- though they include no preparation assistance.
What other free tax-prep options are available?
Depending on your income, age and other factors, you may qualify for free tax preparation and filing from one of these federal programs:
Volunteer Income Tax Assistance. VITA is a federal grant program that provides free tax prep services to low and moderate-income filers who earn $57,000 or less per year, people with disabilities and limited English speakers.
Tax Counseling for the Elderly. The TCE program offers free return filing and tax help for seniors over 60 regarding pensions and retirement tax issues.
The Department of Defense provides service members and their families with free tax resources, including software from H&R Block, as well as financial and legal counseling. MilTax participates in the VITA program, and consultants are available by phone, live chat or in person at the nearest military base.
Sen. Warren and her colleagues have also promised to reintroduce the Tax Filing and Simplification Act, which they say would protect taxpayers from profiteering by tax-filing companies. If passed, the bill would direct the IRS "to create simplified tax filing tools, a truly free replacement to the Free File Program, and give millions of taxpayers the option to avoid tax preparation entirely by providing them with a pre-filed tax return."
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