TurboTax – which has been criticized for some sketchy tactics when it comes to providing free online access through the IRS site – is now shocking taxpayers by informing them that the big brand has quit the Free File program.
The news was officially released in July, which is frankly a fantastic time to squeeze in a tax change. Most early filers don’t start thinking about their taxes until January or February, and some are now surprised to learn online or via email of a big change coming for Free File.
TurboTax notes online: “Intuit has chosen not to renew its participation in the IRS Free Files Program and will no longer offer the IRS Free Files Program provided by TurboTax. ”
TurboTax is the second big name to stop participating. H&R Block left Free File in October 2020.
The Internal Revenue Service is expected to announce the start of tax season in the near future. If we don’t see any delays, tax season could begin at the end of January.
This year, 2021 tax returns are due April 18, according to the IRS online instructions for tax season. (Those who live in Maine or Massachusetts have until April 19 due to Patriots’ Day in those states.)
Most people buy tax software to do it themselves or hire tax professionals to handle their tax returns. Millions of low-income families and seniors also turn to volunteers who prepare their tax returns for free.
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What is a free file?
Yet one easy way to cut costs – which oddly many people don’t exploit – is to use the IRS’s free file system, if you qualify. Why pay $ 40 or $ 50 or more for online software if you don’t have to?
The Free File program on IRS.gov gives eligible taxpayers free access to branded software offered by competing tax preparation companies. Those who qualify can use online software that prompts filers with key tax questions, does the math, and allows you to file electronically for free. Electronic filing helps the IRS process returns and issue refunds faster than a paper return.
TurboTax was only a partner of Free File. Those who chose TurboTax last year can opt for another online tax preparation service under the Free File program. Last year, nine tax software was available through Free File in English and two in Spanish.
Who qualifies for the free file?
If your adjusted gross income was $ 73,000 or less in 2021, you can use free tax software to prepare and electronically file your tax return, per IRS instructions online for tax season 2021. If you won more you can use free file forms.
See IRS.gov/freefile to find options.
About 70% of taxpayers, based on their income, are eligible for some software services offered. But only a small fraction of those who qualify actually use Free File.
More than 4.2 million taxpayers used one of the free online partner products that are part of Free File in 2020, according to IRS data. This excludes the millions of non-filers who have used the system to claim payments with economic impact.
For fiscal 2020, the IRS processed more than 150 million individual returns filed electronically.
Why has participation in Free File been so low historically, even after rising slightly in 2020? Is it because taxpayers don’t know about the high-profile free file? Or have taxpayers gone online and ended up being referred elsewhere for tax services?
We are not talking about a new program. It was about 20 years since the IRS first entered into a special agreement to encourage tax software companies to provide free tax filing software to a certain percentage of U.S. taxpayers. But in return, the deal was to get the IRS to accept that it wouldn’t compete with these companies by providing its own software to taxpayers.
What was the big criticism?
Big names, like Intuit’s TurboTax and H&R Block, came under heavy criticism in 2019 after a ProPublica survey explained how companies limited the program’s reach by making free options harder to find. online and instead finding a way to direct eligible taxpayers to products that weren’t free.
ProPublica’s report included pointing out that Intuit added code to TurboTax’s free file landing page that hid it from search engines like Google, making it hard to find.
In January 2020, the IRS announced changes to provide more protections for consumers.
One of those changes: Tax preparation companies agreed that they would not exclude “Free File” landing pages from an organic search on the Internet.
The IRS suggested that taxpayers look for the standard labeling: “IRS free file program provided by (name of software vendor).”
Under the IRS Free File, taxpayers cannot be offered banking products that often incur fees, such as high-cost prepayment prepayment loans.
If you used IRS Free File last year, you should receive an email from the same company you used, welcoming you to their official IRS Free File services.
The email should include a link to the company’s IRS Free File site and explain how to file with it. If you choose this email link and qualify, you will not be charged for the preparation and electronic filing of a federal income tax return.
What does TurboTax say?
Some consumers report receiving emails from TurboTax in December alerting them that the company is no longer participating in Free File. (Those who file super-simple returns will still be able to use TurboTax Free Edition by February 15 at Turbotax.Intuit.com.)
In a July 15 Intuit blog post, the company said it has been involved with Free File for almost 20 years and has helped millions of Americans prepare and file their tax returns for free. electronically.
Intuit blamed the lack of participation over the next tax season on “the limitations of the Free File program and conflicting demands from those outside the program.”
Instead, the company is focused on accelerating efforts to address other consumer financial challenges “without the constraints of the Free File program.”
According to the company, these efforts include:
- Remove barriers in tax preparation by importing data beyond the tax return.
- Use AI models to proactively engage with customers when they make a mistake or appear confused.
- With customer consent, direct deposit of refunds to free high yield accounts.
- Extend free cash advances to help those in need make ends meet.
Intuit’s products include personal finance apps, Mint, and Credit Karma.
Will we see simpler solutions coming?
US Senator Elizabeth Warren, D-Mass., Criticized Intuit in July on Twitter for leaving the Free File program and said “the IRS can and should create its own free tax preparation and filing system. “.
In early 2020, before the pandemic hit, the IRS said it no longer promises not to enter the tax filing software and electronic file services market. The commitment no longer exists not to create a government-run system.
Then it looked like there might be a silver lining.
The pandemic, however, has hit the IRS hard. Closures to stem the spread of COVID-19 in the spring of 2020 have resulted in delays in processing tax returns and issuing refunds. The IRS also did extra work to roll out Economic Impact Payments and, later, the Early Childhood Tax Credit to support the economy. It was not pretty.
Going forward, it makes sense for the IRS to work harder to give taxpayers even more access to free software options for those who wish to file their own tax returns. Getting Congress to really simplify the tax code wouldn’t hurt either. I wouldn’t bet on seeing these kind of big changes anytime soon.
ContactSusan tompoor vthat is to say [email protected]. Follow her on twitter@trickster. To subscribe, go to freep.com/specialoffer. Rlearn more about the business and sign up for our business newsletter.