TurboTax reaches settlement to pay $141 million for allegedly deceiving customers into paying for tax prep that should have been free
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, Inc., INTU,
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.”
In a statement, Intuit confirmed the agreement and said it had committed to making changes to some of its advertising practices.
“Intuit is pleased to have reached a resolution with the state attorneys general that will ensure the company can return our focus to providing vital services to American taxpayers today and in the future,” said Kerry McLean, Intuit’s general counsel. “In coming to a resolution on this matter, we admitted no wrongdoing and are pleased to be able to continue our strong partnership with governments to best serve the needs of taxpayers across the country.”
In March, the Federal Trade Commission filed a lawsuit against the company alleging deceptive advertising. In its statement, Intuit said it believed its agreement with the states’ attorneys general resolved many of the issues in the suit but that it would defend itself legally if the FTC opted to continue with the case.
James’ office said Intuit offered two free versions of TurboTax. One was through an agreement with the IRS which 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 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.
