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Too many Americans are needlessly throwing money away when they file their income tax return.
That's one of the conclusions to be drawn from a May 4 settlement agreement between all 50 states and TurboTax owner Intuit. That agreement, announced by New York Attorney General Letitia James, requires Intuit to pay $141 million in restitution to millions of Americans who were unfairly charged for services that should have been free. Taxpayers affected by this will automatically receive a refund.
In addition, Intuit agreed to suspend TurboTax's "free, free, free" ad campaign that lured customers with promises of free tax preparation only to deceive them into paying, James said.
Under a longstanding agreement with the IRS called Free File, Intuit and other tax preparation companies offered free filing services to most Americans. (Intuit dropped out of the program last year.) In exchange, the IRS agreed to not create a government tax-filing option that would compete with the private companies.
For the 2020 tax year, that free version of TurboTax was available to taxpayers with incomes of less than about $39,000 and to active-duty military service members with incomes of less than $72,000.
Investigators found, however, that Intuit engaged in deceptive advertising to lure people away from the free option to its TurboTax Free Edition. To take advantage of Free File, you must start your return on IRS.gov, which will then guide you to a participating tax preparation company's website to complete your free filing.
TurboTax instead lured people straight to its website, and its Free Edition service was only free, for people with "simple" returns as defined by Intuit. Only about one-third of taxpayers qualified and ended up paying for services they didn't need, according to the settlement agreement. By contrast, the IRS Free File products are free for 70% of taxpayers, James' office said.
According to James, the methods employed by Intuit included buying search engine advertisements to guide people from the federal program to its supposedly "free" product and then luring them into making payments they could have avoided with the IRS option.
"Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to," James said in a statement. "For years, Intuit misled the most vulnerable among us to make a profit. Today, every state in the nation is holding Intuit accountable for scamming millions of taxpayers, and we're putting millions of dollars back into the pockets of impacted Americans."
The settlement affects 4.4 million customers who were eligible for the IRS Free File program but who were lured to the TurboTax Free Edition in the tax years 2016 through 2018. If you are part of this group, you will be notified automatically and receive a check of about $30 for each year you unnecessarily paid for TurboTax.
In the future, if you have questions about whether you qualify for a perk like Free File, but you are confused, you can talk to a tax attorney or an accountant.
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Intuit has agreed to pay $141 million to settle a case alleging that it deceptively lured taxpayers to pay for tax filing services they could have gotten for free.
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