Intuit, the company behind TurboTax, agreed to pay $141 million after it “swindled 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 will go to consumers who were tricked into paying for their service. This comes as a result of a settlement it made with AG (and officials from 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 tricked into paying 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 maligned for being opaque and having deceptive marketing. For years there were two versions of their tax preparation software that had “free” in the name: TurboTax Free Edition and TurboTax Free File. Intuit, according to AG, heavily promoted the Free Edition as, well, free (the press release notes that some ads used the word “dozens of times in just 30 seconds”). But about 4.4 million people ended up owing Intuit money by 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 grew out of a partnership between the government and tax companies that included Intuit. It was supposed to ensure that most Americans had access to a free version of tax preparation software like TurboTax. It also, as the press release points out, prevented the IRS from creating its own competing service.
Intuit stopped participating in Free File in 2021 citing “limitations” and “conflicting demands from those 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 (something Intuit and H&R Block reportedly did). The rule change also allowed the IRS to create its own free filing system, but has so far not done so.
Intuit’s involvement in the program has drawn scrutiny from lawmakers such as 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 said that TurboTax products “scam American taxpayers into paying for services that should be free.”
Consumers will not receive the full $141 million: the AG press release notes that “approximately $2.5 million will be used for administrative fund costs.” In addition to agreeing to fork out the money, Intuit has also said that:
- Stop Misrepresenting Your Online Tax Preparation Products
- Improve disclosures in your ads and marketing for your free products.
- Make it clearer on TurboTax if you’ll be eligible for free filing
- Not getting customers to start over if they switch from a paid product to a free one
The points about advertising are especially interesting, because the Federal Trade Commission recently sued the company over its use of the word “free” in an attempt to “immediately put an end to false advertising by Intuit.” The FTC lawsuit, which was filed in March, says a hearing is scheduled for the matter in September.