Taxpayers to Receive Refunds from $141M TurboTax Settlement: Here’s What You Need to Know
by Erin Shaak
You may have heard on the news that TurboTax owner Intuit, Inc. has agreed with the attorneys general of all 50 states to pay $141 million in restitution for allegedly tricking millions of taxpayers into paying to file their taxes when they were eligible to do so for free.
According to the May 4 agreement, Intuit offered during tax years 2016 through 2018 two free TurboTax online filing products—one through its participation in the IRS Free File Program that is meant to cover 70 percent of taxpayers, and the company’s own product, called “TurboTax Free Edition,” that is only free for people who have “simple” tax returns.
An investigation led by the New York Office of the Attorney General found that Intuit had essentially steered taxpayers who were eligible for the IRS Free File Program into using the TurboTax Free Edition product instead, only to be told after they’d already started filing their taxes that they were ineligible to do so for free and had to switch over to a paid TurboTax product.
Intuit’s agreement with the attorneys general will provide direct payments of roughly $30 to nearly 4.4 million consumers for each year that they were told they had to pay for TurboTax’s services even though they were eligible to file their taxes for free.
Though this wasn’t a class action lawsuit—more on this below—keep reading to find out what you need to know about the settlement and whether you’re one of the millions of taxpayers who will receive a check.
Will I get money from the TurboTax agreement?
The people covered by the agreement include individuals who, during tax years 2016, 2017 or 2018, were eligible to use Intuit’s IRS Free File product, began filing their tax returns through the TurboTax Free Edition product, were informed that they were ineligible to use the TurboTax Free Edition product, subsequently upgraded to a paid TurboTax product, and had not used the Intuit IRS Free File product in a previous tax year.
According to a May 4 press release by the New York Office of the Attorney General, payments to those covered by the settlement are estimated to be about $30 for each year the individual was tricked into paying for tax filing services.
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I’m confused. There were two free TurboTax options?
If you’re confused about the difference between the IRS Free File Program and TurboTax’s Free Edition product, you’re not the only one.
According to Intuit’s agreement with the attorneys general, the company intentionally failed to clarify the difference between the two products because high participation in the IRS program would “dent its bottom line.”
The agreement explains that the IRS Free File Program is a public-private partnership between the IRS and a group of tax preparation software companies, which used to include Intuit, through which the companies offer free tax preparation products to low- and middle-income taxpayers and members of the military. In exchange, the IRS agreed not to compete with those companies by offering its own online tax preparation service for free.
The IRS Free File Program is meant to cover consumers with an adjusted gross income that’s equal to or less than 70 percent of the U.S. population, though each tax preparation company has some flexibility with how to decide who is eligible for their version of the free product.
For example, between 2017 and 2021, Intuit offered its IRS Free File product, which it called the TurboTax “Freedom Edition,” to consumers with adjusted gross incomes that ranged between $33,000 or less in 2017 to $39,000 or less for returns filed in 2021.
The confusion, according to the attorneys general, came from Intuit’s advertising of its “freemium” product, TurboTax Free Edition, which allows consumers with “simple” tax returns to file for free. Despite the similarity of the names of the two free products, the TurboTax Free Edition product is only actually free for about one-third of taxpayers, the agreement states.
Intuit is alleged to have steered consumers away from using its IRS Free File product by blocking the Freedom Edition landing page from showing up in internet search engines and directing people who were attempting to search for the program to the TurboTax Free Edition product instead.
According to the attorneys general, Intuit misled consumers into believing they could file their taxes for free and didn’t inform them until after they had already spent “significant time and effort” inputting their information using the TurboTax Free Edition product that they were ineligible to use it. At this point, many consumers then switched to a paid TurboTax product even though they may have still been eligible to file their taxes for free under the IRS Free File Program, the agreement stated.
As New York Attorney General Letitia James put it:
Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to. 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.”
Intuit, on the other hand, “neither admits nor denies” any of these allegations.
So, how do I get my check?
There’s nothing you need to do to get a payment from the settlement; payments will automatically be sent to those covered.
Intuit has been asked to provide records of its customers’ names and addresses—which will be supplemented through publicly and commercially available databases and public records—so those covered by the settlement can be contacted.
You should expect to receive an email and mailed notice with information about the settlement, and reminders to cash your check after it’s been issued.
There will also be a way for covered taxpayers to choose to receive their payments electronically, such as through Venmo, PayPal or Zelle, instead of by check.
A website will be set up to inform people of the terms and conditions of the settlement, and there will also be a toll-free number you can call for more information.
Are there any other benefits of the settlement?
Yes. Intuit has also agreed to make some changes to its business practices and is prohibited from making certain misrepresentations about who is eligible to file their taxes for free.
More specifically, Intuit may not misrepresent that consumers can only file their taxes accurately or claim a tax credit or deduction if they use a paid TurboTax product or the TurboTax Free Edition product. The company has also been prohibited from misrepresenting that taxpayers must upgrade to a paid TurboTax product when they are eligible for the free edition, or that they can continue using the free edition when that is not the case.
Intuit will also be required to be clearer in its advertising about who is eligible to use its free products.
Effective December 1, 2022, Intuit must permit taxpayers who start using a paid TurboTax product through an upgrade screen to return to the Free Edition product without being required to re-enter all their information.
Finally, although Intuit voluntarily withdrew from the IRS Free File Program in October 2021, the agreement states that the company must not seek to rejoin the program.
So, this wasn’t a class action?
No. The settlement comes as a result of an investigation opened by the New York Office of the Attorney General after ProPublica reported that Intuit had been attempting to steer consumers away from free tax filing options to its paid commercial products.
New York Attorney General James led the investigation with support from the attorneys general of several other states, and all 50 states and the District of Columbia joined the resulting agreement with Intuit.
Class actions are different from attorney general actions in that they are filed by one or more consumers who are seeking to represent other people who have allegedly been injured in the same way.
State attorneys general act as the “People’s Lawyer” for their state’s citizens and can file litigation on behalf of their state.
Both types of litigation can provide compensation or other relief for a group of people.
What happens next?
Within the next two months, Intuit will be required to submit its proposed contract with the settlement fund administrator, who will be entrusted with distributing payments to covered taxpayers.
It could be a little while before you receive a payment, but keep an eye on your inbox and mailbox for more information about the settlement.
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