TurboTax May Be Easy to Use, but You Might Qualify to File Taxes for Free

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In an email to Teen Vogue, Rick Heineman, vice president of corporate communications at Intuit, defends TurboTax’s online format: The company relies on IRS tax classifications to determine which tax forms are free in its Free Edition product, he writes, adding that Intuit is also the only company that “has done paid advertising to support IRS Free File, to the tune of millions of dollars per year.”

In 2019, ProPublica also discovered that, according to an independent IRS review, TurboTax’s IRS Free File option was hosted on a webpage that included code that prevented the page from appearing in “the organic search results of major web search engines.” Intuit responded by announcing that it would do “a thorough review” of its search practices. Days after ProPublica released its investigation, Intuit reportedly changed the code on its Free File website so that the webpage was no longer hidden

Still, in exchange for the software’s user-friendly interface, countless taxpayers who may legally qualify for free filing often end up paying for products, services, and access to forms they technically could’ve accessed for free, according to ProPublica’s research. Roughly 16 million users successfully completed the process using TurboTax at no cost during the 2020 tax season, but in earlier years, others who say they qualified for free filing spent more than $100 to file their federal taxes, according to reporting by ProPublica, Forbes, and MarketWatch. Previous TurboTax customers joined a class action lawsuit, alleging they were steered toward paying for TurboTax’s product upgrades even though they qualified to file for free. In March, the federal judge presiding over the suit rejected a proposed $40 million settlement, calling it “inadequate” and unfair to the more than 100,000 customers who’ve filed individual arbitration requests.

“It also bears emphasizing that here, that harm is significant. Mostly low-income class members suffered at least $100 in damages,” the judge wrote. “For class members who paid filing fees over multiple years, the harm was much more. And for a family or individual with limited disposable income, $100-per-year can have a material effect. It might be the difference in whether someone can pay rent for a month or buy groceries for a week.”

Intuit also maintains a strong lobbying arm that has pushed the government to continue working with the private sector to handle tax preparation, according to ProPublica’s research. In the past five years alone, Intuit spent more than $13 million on lobbying efforts, targeting issues like taxes, the federal budget, and congressional appropriations. One leaked document obtained by ProPublica, from a 2007 Intuit board of directors presentation, featured a diagram that stood out: It tracked major legislative proposals for easier tax filing options and the actions that killed them. The company explained its perspective further in its 2020 annual report, stating, “If the Free File program were to be terminated or the IRS were to enter the software development and return preparation space, the federal government could become a publicly funded direct competitor of the U.S. tax services industry and of Intuit. Government funded services that curtail or eliminate the role of taxpayers in preparing their own taxes could potentially have material and adverse revenue implications.”

Predictably, the current U.S. tax code already benefits wealthier families more than cash-strapped households. The last time the tax code received a considerable overhaul was during the Trump administration, in 2017. Under the new policy, according to the Center on Budget and Policy Priorities, white households in the highest-earning 1% of taxpayers benefited from 23.7% of the legislation’s tax cuts; while the lowest-earning 60% of households benefited from only 13.8% of tax cuts in the new tax code. Generally speaking, experts say the tax code provides more deductions for income based on existing wealth — a category with a long history of racial disparity — rather than income based on employment. The new tax code also made children without a social security number ineligible to count toward a child tax credit, a policy that impacts millions of undocumented children and their families.

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