Intuit, the company behind TurboTax, has agreed to pay out $141 million after it “cheated millions of low-income Americans out of free tax filing services,” in the words of New York Attorney General Letitia James. Most of that money goes to consumers who have been tricked into paying for the service. This is the result of an agreement it entered into with the AG (and officials from all 50 states and DC), which also requires the company to change its marketing practices.
According to the attorney general’s press release, Intuit owes people $30 for every year they were tricked into paying TurboTax between 2016 and 2018. The document states that “affected consumers will automatically receive notifications and a check in the mail.”
TurboTax has long been reviled for being opaque and having deceptive marketing. For years there were two versions of its tax preparation software with “free” in the name: TurboTax Free Edition and TurboTax Free File. According to the AG, Intuit heavily marketed the free edition as being, well, free (the press release points out that some ads used the word “dozens of times in just 30 seconds”). But about 4.4 million people owed Intuit money using it.
What they should have used was the hard-to-find Free File version, which was part of the Internal Revenue Service’s Free File program. The program was the result of a collaboration between the government and tax companies, including Intuit. It was supposed to ensure that the majority of Americans would have access to a free version of tax preparation software such as TurboTax. It also, as the press release notes, prevented the IRS from creating its own competing service.
Intuit stopped participating in Free File in 2021 citing “restrictions” and “conflicting demands from those outside the program”. This was after the IRS changed the program’s rules and banned tax companies from hiding actually free products from search engines (something Intuit and H&R Block reportedly did). The rule change also allowed the IRS to create its own free filing system, but so far that hasn’t been the case.
Intuit’s involvement in the program has attracted the attention of lawmakers such as Senator Elizabeth Warren (D-MA). Last month, Warren sent a letter to the company accusing it of “lobbying to protect its shady business practices”. The letter also stated that TurboTax products are “framing US taxpayers into paying for services that should be free.”
Consumers will not receive the full $141 million – the AG press release states that “approximately $2.5 million will be used for administrative fund costs.” Aside from agreeing to transfer the funds, Intuit has also said it will:
- Stop misrepresenting its online tax preparation products
- Improve disclosures in its advertising and marketing for its free products
- Make it clear in TurboTax whether you are eligible for free deposit
- Don’t make customers start over if they switch from a paid product to a free product
The points about advertising are especially interesting, as the Federal Trade Commission recently sued the company for using the word “free” in an effort to “immediately end Intuit’s false advertising.” The FTC’s complaint, filed in March, says a hearing on the matter is scheduled for September.