Intuit, the company behind TurboTax, agreed to pay $141 million after it “cheated millions of low-income Americans out of free tax filing services,” in the words of the New York Attorney General. York, Letitia James. Most of that money will go to consumers who have been tricked into paying for its service. This is the result of an agreement reached with the AG (and officials in all 50 states and DC), which will also require the company to change its marketing practices.
According to the Attorney General’s press release, Intuit will owe people $30 for each year they were made to pay TurboTax between 2016 and 2018. The document notes that “affected consumers will automatically receive notices and a check in the mail.” .
TurboTax has long been criticized for its opacity and misleading marketing. For years, there were two versions of its tax preparation software that had “free” in the name: TurboTax Free Edition and TurboTax Free File. Intuit, according to the AG, heavily marketed the Free Edition as, well, free (the press release points out that some ads used the word “dozens of times in as little as 30 seconds”). But around 4.4 million people ended up owing Intuit money while 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 born out of a partnership 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 like 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 “limitations” and “conflicting demands from people outside the program.” This was after the IRS changed the rules of the program, prohibiting tax companies from hiding their truly free products from search engines (which 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 is not the case.
Intuit’s involvement in the program has caught the eye of lawmakers like Sen. 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 “defraud US taxpayers into paying for services that should be free.”
Consumers will not receive the full $141 million – the AG’s press release notes that “approximately $2.5 million will be used for administrative costs.” In addition to agreeing to shell out the money, Intuit also said it would:
- Stop misrepresenting its online tax preparation products
- Improve disclosures in its advertising and marketing for its free products
- State more clearly in TurboTax itself if you will be eligible for a free return
- Do not make customers start over if they switch from a paid product to a free product
The points about advertising are particularly interesting, as the Federal Trade Commission recently sued the company for its use of the word “free” in an effort to “put an immediate end to Intuit’s false advertising.” The FTC complaint, which was filed in March, says a hearing is scheduled for the case in September.