TurboTax to pay $141M for allegedly deceiving users into paying for tax prep that actually was free

May 6, 2022

Tax software giant TurboTax has reached a multi-state settlement to pay back $141 million to low-income customers who were allegedly deceived into paying for tax services they should have gotten for free, according to the New York State Attorney General’s office.

TurboTax, which is owned by Intuit,  was accused of aggressively advertising free tax preparation services for years—but then steering customers who were eligible for it into paying for premium services, reports MarketWatch.

From 2016 through 2018, the company was accused of charging 4.4 million customers in all 50 states such fees, the authorities said. The agreement remains subject to court approval.

“Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to,” said New York Attorney General Leticia James. “For years, Intuit misled the most vulnerable among us to make a profit.”

A message sent to representatives for Intuit wasn’t immediately returned.

In March, the Federal Trade Commission filed a lawsuit against the company alleging deceptive advertising. In response to the suit, Intuit insisted that it was up front with its customers about the fees for its services.

James’ office said Intuit offered two free versions of TurboTax. One was through an agreement with the IRS that allowed taxpayers earning less than $34,000 or who were in the military to  file their taxes for free. As part of the agreement, the IRS agreed not to create its own competing service.

The other was a commercial product called “TurboTax Free Edition,” which authorities said was only free to those with what Intuit determined had “simple returns.”

As part of its advertising campaigns, TurboTax would claim sometimes dozens of times in a 30-second commercial that these services were free, authorities said.

But TurboTax was accused of using deceptive practices to push many of its clients who were eligible for the IRS program into using TurboTax’s program. The company’s product was only free for approximately one-third of U.S. taxpayers, whereas the IRS Free File product was free for 70% of taxpayers.

Among the steps THAT Intuit allegedly took were to block search engines from surfacing their page for the IRS program and failing to list the service on its rate card page.

Those who ended up using the TurboTax program often ultimately had to pay a fee of $30 or more, authorities said.

Customers who were deceived between 2016 and 2018 will receive reimbursements of $30 for each year they filed using the pay service under the settlement.

Intuit also agreed to cease its allegedly deceptive advertising, to better disclose the eligibility criteria of its free services; and to stop forcing customers to restart their tax filing, if they switch from a pay to a free service midway, the government said.

Intuit withdrew from its filing partnership with the IRS in 2021.

Research contact: @MarketWatch