If you got fooled into using TurboTax believing it was free, expect to receive some restitution.
TurboTax’s parent Intuit has agreed to a $141 million settlement for allegedly deceiving low-income consumers into paying for tax services that were originally advertised as free.
On Wednesday, New York Attorney General Letitia James announced the settlement, which will involve sending reimbursement checks to nearly 4.4 million consumers in the US. The company has also agreed to suspend TurboTax’s “free, free, free” ad campaign, which James said lured in customers with promises of free tax preparation services, only to push them into paying.
“For years, Intuit misled the most vulnerable among us to make a profit,” James said. “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 made the settlement following a multi-state investigation from US state prosecutors examining the company’s practices, including how TurboTax had a “freemium” tax-filing service called “TurboTax Free Edition.”
“In some ads, the company repeated the word ‘free’ dozens of times in as short as 30 seconds. However, the TurboTax ‘freemium’ product is only free for approximately one-third of US taxpayers,” the New York Attorney General's office said. In reality, the TurboTax Free Edition applied to “simple” tax returns covering people who only need to file a Form 1040. Other users needing to report other income could only use TurboTax if they paid to upgrade.
The multi-state investigation also found that Intuit allegedly tried to direct users to the freemium product over the IRS’s actual free tax-filing services by using paid search advertisements and other online tactics.
If you were impacted, expect to receive a check in the mail or an electronic transfer from Intuit. According to the agreement, the company is paying $138 million of the funds to affected consumers.
“Under the agreement, Intuit will provide restitution to nearly 4.4 million consumers who started using TurboTax’s Free Edition for tax years 2016 through 2018 and were told that they had to pay to file even though they were eligible to file for free using the IRS Free File program offered through TurboTax,” the New York Attorney’s General office said.
“Consumers are expected to receive a direct payment of approximately $30 for each year that they were deceived into paying for filing services,” the office added. However, before the funds can be distributed, Intuit has to work with an oversight committee over the next few months formalizing the reimbursement process.
According to the agreement, Intuit also has to reform its business practices. This includes more transparent disclosures about when its tax filing is actually free and “refraining from requiring consumers to start their tax filing over if they exit one of Intuit’s paid products to use a free product instead.”
In a blog post, Intuit confirmed that it agreed to the settlement, but did not admit to any wrongdoing. “Intuit already adheres to most of these advertising practices and expects minimal impact to its business from implementing the remaining changes going forward,” it said.
The settlement comes as the FTC is suing Intuit for the same business practices. However, Intuit said the $141 million payment “addresses the issues at the core of the FTC litigation, making that lawsuit entirely unnecessary.”