Do NOT Use TurboTax to File Your Taxes

How TurboTax, H&R Block, and other members of the Free File Alliance have been scamming us for 20 years. And what it might do to your stimulus check.

If you have not had the disprivilege to know what I am talking about, this little ditty is part of an ad blitz by Intuit to get you to use their tax software Turbo Tax. The ad involves a montage of various people awkwardly dancing as they do their taxes on their phones. The repetitive jingle then loops over,

…and over,

…and over again.

It’s the type of earworm that sticks with you long after the ad ends. While I love the artists who made “All People Are Tax People” (Calmatic directed it with Baltimore’s’s TT The Artist doing vocals), the ad is very transparently an attempt by Intuit to use repetition to get consumers to pay for a product that, for many, should be free.

I want to state that again: as of 2020, all Americans who make $69,000 a year or less are being scammed if they pay ANYTHING to file their federal taxes.

The tax industry has recently invested in an intense ad campaign this year to promote themselves, and the reason for this has everything to do with desperation. This predatory industry is finally succumbing, at long last, to potential regulation, and they are hoping to take advantage of this scary moment in history to save themselves from the fire.

Our anxiety over this activity means we are collectively willing to fork over a lot of money to make this frustrating process easier. This pressure point translates into huge profits for taxed preparing companies such as Intuit and H&R Block. The TurboTax unit of Intuit, for example, reported revenue of $2.25 billion in the 2019 fiscal year alone.

While Americans are willing to spend billions to shorten this process, we often don't stop to wonder:

Why is this system so complicated?

It might shock you to learn that taxes are not a stressful endeavor for many countries around the world.

According to the Tax Policy Center (a joint venture between the Urban Institute and the Brookings Institution), there are over 35 countries where the government does its own accounting every year on behalf of the taxpayer (sometimes called “return-free tax filing”). The government pre-populates a physical or digital form, and then usually sends it off to the individual user for confirmation. The process, in most cases, is so painless that a lot of non-US citizens have no tax-related anxieties whatsoever. As Journalist T.R. Reid described to PBS:

“I was in the Netherlands on March 31, the day before their taxes are due.

I was with an executive who makes $200,000 a year, two mortgages, a lot of investments. He’d have to fill out 12 forms in America. I said, Michael, how do you pay your taxes? He pops a beer. He goes online. The government’s filled in every line. If the numbers look right, he clicks OK. It takes five minutes.”

The ease of return-free tax filing seems like a no-brainer. The Internal Revenue Service (IRS) already receives most of the information necessary to do this accounting for you. Whenever you are sent a 1099 or W-2, they ALSO recieve them.

While more complex returns still might require some assistance from a professional, for the vast majority of Americans, it would not be difficult for the IRS to use the information they already collect to file your taxes for you.

Indeed, US presidents have been trying to advocate for such a reform for over 35 years. It was conservative president Ronald Reagan who said in a speech on taxes on May 28, 1985:

“We envision a system where more than half of us would not even have to fill out a return. We call it the return-free system, and it would be totally voluntary. If you decided to participate, you would automatically receive your refund or a letter explaining any additional tax you owe.”

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Source: Reagan Library

That was Ronald “the-government-is-too-big” Reagan advocating for the government to do the labor of filing taxes on behalf of most Americans. We saw similar promises made by both the George W. Bush and Obama administrations.

This is a widely popular policy, and it’s not like the public hates the idea of a return-free tax filing system. Back in 2005, the state of California released a pilot program called ReadyReturn to over 50,000 state residents. The plan was so successful that 99 percent of the people who used it said they’d use it again. Despite this overwhelming success, ReadyReturn was only adopted on an opt-in basis in California.

All of these attempted reforms failed, not because this policy is inefficient or widely disliked, but due to an unholy alliance between tax-hating Republicans and the tax-preparer industry (e.g., Turbo Tax, H&R Block, etc.).

The tax-industry doesn’t want to lose money, and Republicans don’t want the government to work.

In a 2017 corporate filing, Intuit warned investors: “We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future.”

Encroachment is industry-jargon for government reform, and its something Intuit considers such an existential threat that they have spent millions in lobbying over the last decade. Republicans, in particular, have been quite receptive to this lobbying because of their stance on taxes.

They don't like them.

Staunch anti-tax advocate Grover Norquist has convinced hundreds of politicians across the country to sign the Taxpayer Protection Pledge, which is a written commitment to oppose any tax increases (nearly half your US Senators have signed this).

Over the past three decades, Republicans have become openly hostile to the idea of taxation, and that extends to the IRS — the entity that administers tax collection. Republican candidates for president ranging from former Sen. Richard Lugar of Indiana to Ted Cruz have campaigned on abolishing it. The agency’s budget has also been consistently slashed for over half a decade; and, there is a deadset refusal to implement any reforms that would help make tax collection more accessible.

Tax-hating Republicans such as Norquist have long believed that a more efficient filing system would make it easier for the government to increase taxes. This means that whenever Intuit’s market share has come under fire from government reform or “encroachment,” the company has found a sympathetic ear from signers of the Taxpayer Protection Pledge (millions in campaign contributions also didn't hurt).

The first significant threat came from the George W. Bush Administration, which wanted to create an efficient, electronic filing system called the EZ Tax Filing Initiative. According to the President’s Budget Proposal for the 2003 fiscal year:

“It should not be so hard to file your taxes…Electronic filing is quick, easy, and far less prone to error than traditional paper returns. The administration proposes an easy, no-cost option for taxpayers to file their returns online.”

The tax-industry went into overdrive to squash this initiative. Intuit, in particular, spent $517,525 during the 2002 election cycle. The companies lobbyists overwhelmed politicians with claims that this would undermine the validity of the tax preparation industry. Many politicians soon threatened to cut the IRS’ funding if the agency went forward with the plan.

The EZ Tax Filing Initiative would never see the light of day.

Instead, we saw the birth of the Free File Alliance (FFA), which is a public-private partnership that survives to this day. The IRS agreed not to compete in the tax-filing space, and in exchange, an alliance of tax companies agreed to file the federal taxes for 60% of all Americans FOR FREE (this would later be tied directly to income).

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Source: FFA

On the user’s end, this essentially translates to a curated, IRS-hosted webpage where a taxpayer can select among several companies to file their federal taxes, again, FOR FREE. They choose the service they qualify for and are then redirected to that company’s website.

This arrangement sounds excellent in theory for the American taxpayer, but it was actually a victory for the tax preparation industry because it kept the IRS out of the game. The FFA would never satisfy its original objective, and for reasons we will get into soon, Free File remains unwieldy and challenging to use.

The Free File Alliance would again be challenged politically during the Obama administration, but this effort would similarily be squashed. The outcome of this battle is that a “No Funds” rider was added to the 2015 appropriations bill that prevents the IRS from creating a public filing system.

It has remained in place ever since.

In 2019, it looked like we were on the verge of solidifying this terrible arrangement forever. Republican Rep. Mike Kelly of Pennsylvania and Democratic Rep. John Lewis of Georgia introduced the deceptively named Taxpayer First Act that would codify the Free File Alliance into law. Americans would have to file taxes like this indefinitely to line the profits of a very few, but then something unusual happened — decades of the industry’s abuses caught up to them all at once.

The wall Intuit constructed started to crumble.

Companies in the Alliance have advertised their participation as a charitable endeavor, rather than the act of corporate survival that it is. Intuit, in 2018, for example, claimed that they had donated $2.3 million in federal and state returns in their Corporate Responsibility Report.

Yet, in reality, there has been a consistent effort to obscure the rules of this program, so even eligible people don't use it. For example, while the entity that is the FFA is required to serve all Americans that make below a certain income threshold, each member company is not. The companies within the Alliance have consequently divided up the demographics that they wish to serve.

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Source: IRS FFA Page

As seen above, the criteria to qualify for a program is complicated to follow. TurboTax only serves filers if their income is $36K or below, OR they are eligible for the Earned Income Tax Credit, OR are active in the military and make $69K or below. If you earn $69K or below but don't fit TurboTax’s specific requirements, then you will have to find one of the nine other members in the Alliance who do.

Other members of alliances only serve specific states or age ranges.

This system would be hard to navigate during the best of times, but the problem is further compounded by the deceptive practices these companies have employed. Until very recently, Intuit and H&R Block used code to hide their Free File pages from search results. You would have to know what page you were looking for to find it (the current page for Intuit is here).

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Source: TurboTax

The company also employs design tricks (sometimes referred to as “Dark Patterns”) to navigate users away from the Free File page. On TurboTax’s main page, they advertise a FREE version. In small font, you’ll notice that this only applies to Simple tax returns, which is very narrowly defined as “ a 1040 Form only, without any additional schedules.”

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Source: TurboTax

The moment users go beyond that complexity, including many state and federal tax returns, they have to pay for it. This bill comes at the end of the process — after the user has already input all their information — and unsurprisingly, many users opt to pay that amount rather than start the process over. Since the “simple tax returns” disclaimer is technically there, Google does not consider this a violation of its terms of service.

Worse, if a user who is eligible for the Free File program begins this process on the normal TurboTax “free” edition, they are not redirected to the Free File page.

They have to pay like everybody else.

These deceptive tactics meant that millions of Americans who were eligible for the Free File Alliance were tricked out of using it: an audit from the Treasury Inspector General for Tax Administration found that in 2019 more than 14 million taxpayers paid for tax prep software such as TurboTax that they could have gotten for free.

Starting in the late 2010s, however, the public began to catch on to these practices. For example, the Californian ReadyFile pilot we discussed earlier was featured in a viral profile on NPR’s Planet Money in March of 2017.

More prominently, the Pulitzer-award-winning news site ProPublica started to release exposé after exposé deconstructing the predatory nature of this industry (this article would not be complete without it).

This reporting led to political results: The IRS’ Advisory Council released a damming report in November of 2018 that alleged that the IRS did not provide adequate oversight over the Free File program. The Treasury Inspector General also released a similarily scathing audit, and this all had the effect of Congress dropping the parts in the Taxpayer First Act that would have codified the Free File program.

The most significant change was that the IRS amended its agreement with the Alliance to be far stricter. In an addendum signed in December of 2019, the IRS forbade the FFA members from hiding Free File pages from search results, mandated title standardizations across all platforms, and, most importantly, retracted its commitment to not competing in the tax-filing space.

The message was clear: the FFA is on thin ice.

The “No Funds” rider still prevents the IRS from competing in earnest. Nevertheless, if this were ever lifted, the once unflappable tax-preparation industry would face far more competition from a service that would genuinely be 100% free.

We are still nowhere near a free, electronic, IRS-administered filing system, but we are closer now than we have ever been.

The tax preparation industry has to think very carefully about how it presents itself; right now, that has prompted an advertising campaign which Intuit hopes will erase the American public’s short memory.

“So far, it seems, the companies are abiding by their promise to make their Free File webpages visible in online searches. But the updated agreement appears to have a loophole: It doesn’t apply to advertising. Nothing in it, the agreement states, limits or changes the rights of participating companies to advertise ‘as if they were not participating in the Free File program.’”

Intuit has had a “Free Edition” for over a decade, but as we have already seen, this edition has rarely been free for the majority of filers. This package came in response to a competitor in the mid-2000s called TaxAct (now owned by Blucora), which in 2004 offered “free federal online tax preparation and e-filing for all taxpayers” through the IRS Free File page. TurboTax’s offer, at the time, was far harder to parse as it added restrictions such as having to be eligible for the EIC, being 22 or younger, age 62 or older, or active in active military service with a W2.”

The simplicity of TaxCut’s offer made them one of the biggest online tax-preparers in the nation. The following year many members of the FFA adopted TaxAct’s offer, including TurboTax. Participation in the Free File program consequently swelled to 5 million people.

Intuit and company, however, lobbied the IRS to rework the rules, so members of the FFA were barred from offering free tax prep to everyone through the IRS’ FFA portal. A new agreement was struck, and tax prep was now explicitly constrained to people below a certain income level.

TaxAct instead offered the deal on its own website, and TurboTax followed suit in 2007. Intuit quickly learned that the allure of “free” was itself enough to captures users. What followed was a decade of the industry touting free software that almost always came with a charge when the user wanted anything beyond a 1040EZ (now discontinued).

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Source: TurboTax

As far back as 2011, Intuit was posting instructional videos on free filing options on their YouTube channel. The free aspect of their ads started to more seriously take root in 2016 with a campaign that likened TurboTax to other free things such as daydreaming, extra toppings, and secret handshakes. This year, in 2020, they released a “free, free, free, free” campaign that shows people in various situations (i.e., a spelling bee, action movie, courtroom, and doing a crossword puzzle) saying the word free.

In concurrence with this campaign, TurboTax also released its “All People Are Tax People” campaign that links American exceptionalism with filing your taxes. The original English-speaking ad shows a montage of things ranging from a person standing on top of a mechanical bull to someone transporting cactuses, with a narrator that tells the viewer that the all too impossible act of filing your taxes can also be achieved.

“NARRATOR: So how come all these people who do widely challenging things every day, feel like they can’t do their taxes?…We believe people can do anything. Yes, even taxes.”

There is a certain irony here when the source of that difficulty is literally bragging about it to sell you a service.

If anything embodies America, it’s that.

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Source: TurboTax

It was this campaign that was remixed into the song “All People Are Tax People” for the Superbowl. The ad cost the company $5.4 million alone, and according to MediaRadar, their total ad spending this year eclipses $100 million.

With public opinion slowly turning against them, albeit not quickly enough, Intuit was hoping that this ad blitz would see it through what might have been its first challenging tax season.

And then a miracle happened: the world got sick.

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Source: The New York Times

That orange spike near the end is not a typo. It is the number of people who have filed an unemployment claim. It tops six million people, which dwarfs anything that happened during the Great Recession.

This calamity is the reason Congress recently passed the CARES Act. This $2.2 trillion stimulus package provides payments of up to $1,200 for every American with a Social Security number who also isn’t considered a dependent.

Even a Republican-controlled Senate recognizes that people need money, and fast.

The money is being distributed through the IRS. Most US citizens who have filed their taxes in either 2018 or 2019 should theoretically have to do nothing to recieve this money. They are already in the system, but because the IRS is a beleaguered agency suffering under immense budget cuts, delays have already started to pile up. A recent glitch in the system prevented the stimulus from reaching millions of Americans.

People want to know how to get their money, and the answer they keep hearing from some is to file their taxes. In fact, a recent CNBC article directed readers who did not file their taxes last year to use a TurboTax-constructed tool:

“Online tax preparation service TurboTax has launched a free stimulus registration website so that Americans who do not typically file tax returns can get their relief checks faster.”

This tool (which I will not link to because that would be irresponsible) is not helpful, but in fact, a marketing scam. The IRS has built an actual tool for you to check on your payment status here (though it has been having some issues).

If you normally do not need to file taxes, you can upload your information here.

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The TurboTax tool above instead redirects users to the main TurboTax page. They are using this scary moment in history to make more money, and its something their ad campaign is playing into. As a narrator remarked in a recent TurboTax commercial:

“So many firsts are happening as we speak. First time school is home and home is school. First time working out in your living room gym. First time having happy hour online….But you don’t have to do it alone. Turbotax Live has CPSs on demand to answer questions, help get your best possible refund….and make filing your taxes easy…from home.”

They are purposefully linking Americans’ anxiety over getting their stimulus checks to filing taxes on their paid platform. This manipulation is gross, and I am begging you to not fall for it.

Worse still, using tax-prep software such as TurboTax may have delayed millions of Americans from receiving their checks. In the words of Katie Lobosco in CCN Politics:

“You may not even realize it, but sometimes tax preparers set up a temporary account and that’s where your tax refund is deposited first…It may take longer for you to receive your stimulus money if that’s the case. When stimulus payments were sent out in 2008, this glitch affected about 20 million people. But they eventually received the money by a paper check.”

And so, not only is the paid version of TurboTax unnecessary for millions of Americans, it can be slower.

You deserve better than this.

Facebook may have warped our democracy, but their service does bring people together.

Exxon is killing the planet, but they do power our homes.

We might hate these entities, and we should, but some factors make it difficult to simply wave our hands and get rid of them overnight (note — we should still phase them out, and soon).

TurboTax, though, provides no utility to our society. They are a parasitic entity that has warped American life so severely that everyone suffers, and only a handful of people truly gain anything from it.

This has to stop.

April 15 was supposed to be tax day, but because of the coronavirus pandemic, that deadline has now been extended to July 15. If you filed in 2018 and gave the IRS your banking information, then you should not have to do anything to recieve your stimulus check.

If you do need to file and you make $69K or less, then please start on the IRS Free File page to see what offers you qualify for.

If you want to check on your stimulus check, use the IRS tool here. Delays could happen for a variety of reasons, including money going to an old bank account, the funds currently being in a temporary account administered by a tax-prep company like Intuit, or a simple computer glitch.

Stay safe out there, and whatever you do, do NOT use TurboTax to file your taxes.

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I write about pop culture, politics, and every in between.

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