Intuit withdraws TurboTax from Free File Alliance

Intuit has decided to leave the Free File Alliance after coming under criticism for making it difficult to access a truly free version of TurboTax.

The tax and accounting software company announced on its blog last week that it will stop participating in the program in October, saying the move would allow it to innovate in ways not allowed under the program. “This decision will allow us to focus on further innovating in ways not allowable under the current Free File guidelines and to better serve the complete financial health of all Americans through all of our products and services, in tax preparation and beyond,” said Intuit.

Intuit came under pressure in 2019 after a series of articles on the investigative news site ProPublica found that Intuit and H&R Block attracted taxpayers with the free versions of their software, but steered them toward paid versions of their products. Intuit had also made it difficult for taxpayers to find the free versions of their software by using search engine code that steered taxpayers to the versions that would lead them to pay instead of to the version available on the official IRS Free File website. H&R Block departed the Free File program last year.

The controversy sparked investigations in Congress, the IRS, and the Treasury Inspector General for Tax Administration. The IRS was forced to revamp the Free File program in early 2020 to prevent vendors from providing misleading search results (see story). A report by TIGTA in February 2020 found a low participation rate in the Free File program, with only 2.5 million (or 2.4%) of the 104 million eligible taxpayers in 2019 obtaining free return filing through the program.

Andrew Harrer/Bloomberg

The Free File Alliance is a consortium of tax software companies who have agreed to offer free versions of their tax software to taxpayers below certain income levels (currently $72,000). However, the vendors often place conditions of their own on who can use the software, such as age ranges, members of the military, specific states and they often don’t offer the state tax software for free. The departure of the two most widely used consumer tax prep products — Intuit’s TurboTax and Block’s software — means the options have dwindled for consumers, but the group still includes TaxAct, TaxSlayer, and several lesser known services like FileYourTaxes.com, FreeTaxUSA, 1040Now, ezTaxReturn, OLT OnLine Taxes, and Free 1040 Tax Return.

Another free tax software provider that’s not part of the program is Credit Karma Tax, which Intuit was forced to divest last year when it acquired Credit Karma to win antitrust approval from the Justice Department (see story). The service is now owned by Square, although it’s still called Credit Karma Tax. The Credit Karma tax developers had opted not to join the program because they felt it also inhibited their ability to innovate. In exchange for free tax preparation, users are required to share their personal financial information with vendors who offer them credit cards and other financial services (see story).

Intuit said it still plans to offer free tax prep products even after departing the Free File program. “Intuit remains committed to free tax filing,” said the company in the blog post. “With more free tax filings than all other tax prep software companies combined, Intuit is the industry leader in free tax preparation. Last tax season, Intuit delivered 17 million free tax filings, including approximately 3 million through Free File, and nearly 100 million free filings over the past 8 years with nearly 90% of those free tax filings coming outside of the Free File program. Moving forward, Intuit is committed to continuing to offer free tax preparation while accelerating innovation to address all of consumers’ financial problems.”