TurboTax to Pay $141 Million Settlement for Deceiving Taxpayers

Turbo Tax is displayed on a device in San Francisco, Calif., on Feb. 22, 2018. Kimberly White/Getty Images for TurboTax

New York attorney general Letitia James announced that low-income consumers who had been “tricked” by the financial software firm Intuit into paying for free tax services will be receiving millions in dollars as a settlement.

The case revolves around Intuit’s TurboTax tax-preparation software. The $141 million multistate settlement with Intuit was announced last year. The settlement was made after Intuit was charged for deceiving millions of low-income Americans to pay for tax services that should have been free. All 50 states as well as the District of Columbia have signed the agreement.

Around 4.4 million Americans nationwide will receive checks in mail as part of the settlement. In New York, over 176,000 citizens will altogether receive more than $5.4 million. Checks will be mailed throughout May.

Eligible recipients include individuals who paid for filing their federal tax returns via TurboTax in 2016, 2017, and 2018, but were qualified to file for free through the Internal Revenue Service’s Free File Program.

Most people are expected to receive amounts ranging between $29 and $30. Those who filed for three consecutive years through TurboTax can receive up to $85.

“TurboTax’s predatory and deceptive marketing cheated millions of low-income Americans who were trying to fulfill their legal duties to file their taxes,” said Attorney General James, according to a press release on May 4.

“Today we are righting that wrong and putting money back into the pockets of hardworking taxpayers who should have never paid to file their taxes. I thank my fellow attorneys general for their partnership in this effort to stand up for ordinary Americans and hold companies who cheat consumers accountable.”

The Investigation

The New York Office of the Attorney General (OAG) investigation against TurboTax was triggered following a 2019 story by news outlet ProPublica which claimed that Intuit was using deceptive digital tactics to move low-income customers away from free, government-supported tax services to its own commercial products.

Intuit had entered into a public–private partnership with the IRS to set up the IRS Free File program that allowed taxpayers earning around $34,000, as well as military members, to file taxes for free. In exchange, the IRS agreed that it would not offer its own electronic tax-filing services to citizens.

Intuit had a commercial service called “TurboTax Free Edition” that is only free for Americans who file “simple returns” as defined by the company. Intuit pushed this service, stressing the word “free,” through multiple ad campaigns.

However, TurboTax Free Edition only provided free services to around a third of American taxpayers, which is far lower than the IRS Free File service that was free for 70 percent of taxpayers.

The multistate investigation found that Intuit conducted multiple deceptive and unfair trade practices to limit people’s participation in the IRS Free File program. The firm used confusing similar names for both the IRS Free File program as well as its TurboTax Free Edition.

“Intuit bid on paid search advertisements to direct consumers who were looking for the IRS Free File service to the TurboTax ‘freemium’ product instead. Intuit also purposefully blocked its IRS Free File landing page from search engine results during the 2019 tax-filing season, effectively shutting out eligible taxpayers from filing their taxes for free,” according to a press release on May 4.

“Moreover, TurboTax’s website included a ‘Products and Pricing’ page that stated it would ‘recommend the right tax solution,’ but never displayed or recommended the IRS Free File program, even when consumers were ineligible for the ‘freemium’ product.”

In July 2021, Intuit withdrew from the IRS Free File program. The company has agreed to refrain from misrepresenting its tax-preparation offerings. Intuit will also design its products in a way that will better inform users whether they are eligible for free tax services.

Settlements in Other States

California attorney general Rob Bonta announced that roughly 370,000 citizens from the state will receive $11.4 million in settlement. Though 70 percent of taxpayers qualified for the IRS Free File program, less than 3 percent used it to file returns in 2020 due to the “tricks and tactics” employed by Intuit, a press release said.

In Colorado, more than 89,000 individuals are eligible for $2.7 million in settlements. Almost 500,000 citizens from Texas will receive more than $14 million in restitution.

Over 143,000 people in Illinois will get $4.38 million from the settlement. “I am pleased that consumers will start to receive checks under the settlement, which holds Intuit accountable for intentionally deceiving taxpayers simply to increase sales of their products,” said Attorney General Kwame Raoul.