Many Americans who pay the online do-it-yourself tax-preparation giant TurboTax may not even know the company offers a free version of its services, under an agreement with the federal government. Critics say that lack of knowledge is intentional — that after agreeing two decades ago to provide free filing services in exchange for a promise that the federal government wouldn’t offer its own free filing system, the company has downplayed its free service and steered users toward its paid services at every turn.
TurboTax now says it’s getting out of the government’s free-filing agreement entirely. Good. It clears the way for the IRS to do what it should have done long ago, and create its own free government portal for online tax preparation and filing.
During the George W. Bush administration, tax-preparation giant Intuit, owner of TurboTax, sidelined its most ominous potential competitor in the then-nascent online tax-filing industry: the federal government. The Bush administration had proposed the IRS create a free online filing website for taxpayers. Intuit and other private tax-preparation companies dispatched lobbyists to stop the feds from providing this reasonable service to the taxpayers.
They did it by cutting a deal to provide a free version of their services for taxpayers whose taxes were relatively simple (which is most of them). It sounded like a reasonable tradeoff — after all, Intuit, H&R Block and other companies already had the expertise in online tax services. The problem was that the companies had little incentive to make the free system work.
TurboTax, the largest of the entities that participated in the public-private Free File program, has since perfected the art of steering customers away from that program and toward its paid services. A 2019 ProPublica investigation found the company even resorted to adding code to its free program to prevent it from showing up in Google searches. These tactics worked. By 2019, some 40 million Americans were filing online with TurboTax, but fewer than 3 million were using the Free File program — even though roughly 70% of taxpayers are eligible to use it.
H&R Block announced last year it was leaving the free government program; TurboTax says it will exit after this year’s tax-filing season. With the two biggest providers leaving, the Free File system appears doomed. And that’s an opportunity.
Other advanced nations take advantage of modern internet efficiency by offering taxpayers free online filing directly to the government. There’s nothing to prevent this stunningly obvious service in the U.S. — nothing except the misplaced notion that even the civic responsibility of filing tax returns should be a profit opportunity for corporate America.
That profit comes at the expense of working taxpayers. Paying taxes is unpleasant enough; having private companies skim their take is worse. TurboTax’s exit should signal the start of a new era of free online tax filing with the government.