TurboTax, which has been criticized for some incomplete tactics when it came to providing free online access through the IRS site, is now shocking taxpayers by informing them that the big brand has exited the Free File program.
The news was officially released in July, which frankly is a great time to introduce 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 significant change coming for Free File.
TurboTax online notes: “Intuit has chosen not to renew your participation in the IRS Free File program and will no longer offer the IRS Free File program provided by TurboTax. ”
TurboTax is the second big name to stop participating. H&R Block exited Free File in October 2020.
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The Internal Revenue Service is expected to announce the start of the tax season in the near future. If we don’t see any delays, tax season could start in late January.
This year, 2021 tax returns are due April 18, according to IRS instructions online for tax season. (Those who live in Maine or Massachusetts have until April 19 due to the Patriot Day holiday in those states.)
Most people buy tax software to do it themselves or hire tax professionals to handle their income tax returns. Millions of low-income families and seniors also turn to volunteers to prepare tax returns for free.
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What is Free File?
However, one simple way to cut costs, which many people curiously don’t take advantage of, is still to use the IRS 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 on IRS.gov offers eligible taxpayers free access to branded software programs offered by rival tax preparation companies. Those who qualify can use online software that asks taxpayers 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 return filed on paper.
TurboTax was just a partner in Free File. Those who selected TurboTax last year can opt for another online tax preparation service in the Free File program. Last year, there were nine tax software products available through Free File in English and two in Spanish.
Who qualifies for 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, according to IRS Instructions online for the 2021 tax season. If you earned more, you can use the Free File forms.
See IRS.gov/freefile to search for options.
Approximately 70% of taxpayers, based on income, qualify for some of the 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 Free File’s free online partner products in 2020, according to IRS data. That excludes the millions of non-filers who used the system to claim Economic Impact Payments.
For fiscal year 2020, the IRS processed more than 150 million electronically filed individual returns.
Why has Free File’s share historically been so low, even after a rally in 2020? Is it because taxpayers are unfamiliar with the highly publicized Free File? Or did taxpayers go online and end up being directed elsewhere for tax services?
We are not talking about a new program. It has been approximately 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 US taxpayers. But in return, the deal included getting the IRS to agree that it would not compete with these companies by providing its own software to taxpayers.
What was the big review?
Big names like Intuit TurboTax Y Block H & R, It faced much criticism in 2019 after an investigation by ProPublica detailed how companies limited the program’s reach by making free options more difficult to find online and instead discovered a way to direct eligible taxpayers towards products. they weren’t free.
ProPublica’s reports included noting that Intuit added code to TurboTax’s Free File home page that hid it from search engines like Google, making it difficult to search.
In January 2020, the IRS announced some changes designed to offer more consumer protections.
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 a standard labeling: “IRS Free File Program delivered by (the name of the software vendor).”
As part of IRS Free File, bank products that often carry fees, such as high-cost refund anticipation loans, cannot be offered to taxpayers.
If you used IRS Free File last year, you should receive an email from the same company that 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 apply. If you choose this email link and qualify, you will not be charged for the preparation and electronic filing of a federal tax return.
What does TurboTax say?
Some consumers report receiving emails from TurboTax in December alerting them that the company was no longer participating in Free File. (Those who file ultra-simple returns can still use TurboTax Free Edition before February 15 on Turbotax.Intuit.com.)
In an Intuit blog post dated July 15, the company said it has participated in Free File for nearly 20 years and has helped millions of Americans prepare and e-file their tax returns for free.
Intuit blamed the lack of participation during the upcoming tax season on “the limitations of the Free File program and the conflicting demands of those outside the program.”
Instead, the company is focused on accelerating efforts that address other consumer financial challenges “without the restrictions of the Free File program.”
Such efforts, according to the company, include:
- Remove obstacles in tax preparation by importing data beyond the tax return.
- Use AI models to proactively intervene with customers when they may be making a mistake or looking confused.
- With customer consent, direct deposit of refunds to free high-yield accounts.
- Extend free refund advances to help those in need make ends meet.
Intuit’s products include the Personal Finance, Mint, and Credit Karma applications.
Will we see simpler solutions in the future?
US Sen. Elizabeth Warren, D-Massachusetts, took to Twitter in July on Intuit for exiting the Free File program, saying “the IRS can, and should, create its own free tax preparation and filing system.”
In early 2020, before the pandemic, the IRS said it was no longer promising not to enter the market for tax filing software and electronic filing services. There is no longer a commitment not to create a government-run system.
Then, it seemed like there might be a glimmer of hope.
The pandemic, however, hit the IRS hard. The closings to stop the spread of COVID-19 in the spring of 2020 led to delays in the processing of income tax returns and the issuance of refunds. The IRS also collected additional work to implement the Economic Impact Payments and then the Child Tax Credit upfront to prop up the economy. It wasn’t pretty.
Moving forward, it only makes sense for the IRS to work harder to give taxpayers even more access to free software options for those willing to do their own tax returns. Getting Congress to actually simplify the tax code wouldn’t hurt either. I would not bet on
Follow Susan Tompor in Twitter@tompor.
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George is Digismak’s reported cum editor with 13 years of experience in Journalism