Series: The TurboTax Trap
How the Tax Prep Industry Makes You Pay
TurboTax maker Intuit, the largest company in the tax-preparation software industry, announced Thursday that it will leave the Free File program, the public-private partnership that offers free tax filing to millions of Americans but has been a magnet for controversy since its creation two decades ago.
The program was founded as a gambit by the tax prep industry, led by Intuit, after the George W. Bush administration proposed that the IRS create a free online filing option for taxpayers. Such an option would have threatened the profits of the burgeoning tax prep software business. After lobbying by the companies, the IRS agreed not to develop its own filing portal. In exchange, the industry offered free versions of its software, including TurboTax, to most Americans.
The exit of Free File’s two largest participants — Intuit, and, last year, H&R Block — throws the future of the program into doubt. The Free File Alliance, the industry group that administers the program with the IRS, did not immediately respond to a question about the viability of the program after Intuit’s departure, but said, “We appreciate [Intuit’s] service in providing millions of free returns to American taxpayers.”
Intuit made its announcement in a blog post titled “Accelerating Technology Innovation to Better Help Consumers Solve Their Most Pressing Financial Problems.” The company said its decision to leave the program at the end of the tax season in October will allow it to “focus on further innovating” in ways it said are not permitted within the program. The agreement with the IRS that governs the program comes with a series of restrictions — including some that bar advertising most paid products to Free File users — which were imposed to ensure the program is actually free.
“Intuit’s goal is to democratize financial services that are usually only available to the wealthy by providing all Americans access to opportunities to improve their finances,” the company’s blog post said. “Yet the Free File program is designed to focus solely on tax preparation and e-filing with strict requirements for user experiences.”
The statement added that “Intuit remains committed to free tax filing. With more free tax filings than all other tax prep software companies combined, Intuit is the industry leader in free tax preparation.”
An Intuit spokesperson declined to comment beyond the blog post.
A series of articles by ProPublica have shown that, for many years, Intuit and other firms have steered taxpayers who were eligible for free online tax prep toward paid options. Some of these tactics centered on heavily marketing options that were labeled “free” but were separate from the Free File program and often led users to paid commercial products. In 2019, Intuit went so far as to add code to its Free File website that kept the option from turning up in results on Google and other search engines. (That code was later removed.) The company used “dark patterns,” according to ProPublica’s reporting, which are “design tricks to get users of its website to do things they don’t necessarily mean to do.”
An audit by the Treasury Inspector General for Tax Administration estimated that in 2019 more than 14 million taxpayers paid for tax prep software that they could have gotten for free. ProPublica estimated that those customers generated around $1 billion in revenue for Intuit and other firms.
Intuit’s announcement this week comes amid ongoing litigation, sparked by ProPublica’s reporting, alleging that the company tricked TurboTax users into paying for tax prep they were eligible to get for free. In both the litigation and in responses to previous articles by ProPublica, Intuit has denied misleading customers.
Tens of thousands of TurboTax customers are seeking to use arbitration, an alternative to a lawsuit, to pursue claims that they paid for a service that should have been free. Intuit has denied wrongdoing.
The IRS Free File program currently has nine free offerings from tax prep companies, including Intuit. The other offerings come from far less well-known brands, including TaxSlayer and FileYourTaxes.com. The IRS didn’t respond to a request for comment.