Some Democratic lawmakers are accusing TurboTax owner Intuit of misleading taxpayers as the company advocates for shuttering the government’s free direct tax filing program.
TurboTax, which currently dominates the tax preparation market, promises free tax filing services for eligible individuals. But a new analysis by Sen. Elizabeth Warren’s staff found TurboTax covertly switched their sample taxpayer from the free edition, ultimately charging $128 for services they could file for free with Direct File.
“Your tactics are misleading and misserving taxpayers who would benefit from this free and easy-to-use alternative to your company’s commercial tax preparation tools,” Sens. Warren and Ron Wyden, the top Democrats on the Senate Banking and Finance committees, respectively, and Rep. Mark Pocan wrote in a letter to Intuit shared exclusively with NOTUS.
The Internal Revenue Service’s Direct File, which launched last year, allows eligible taxpayers to file federal returns directly and for free. There is no income limit like with IRS Free File, a partnership between the tax agency and preparers that TurboTax no longer offers.The program is currently available in 25 states this year and is intended to handle simple returns; gig, rental or business income tax returns are not eligible.
Still, tax preparation companies have lobbied for decades against programs that would allow taxpayers to file directly with the government, which is common in other countries including Japan, Australia and the United Kingdom. Companies including Intuit and H&R Block — and their Republican allies on Capitol Hill — openly argue Direct File should be shuttered, calling it unnecessary, costly and unauthorized.
Tania Mercado, an Intuit spokesperson, told NOTUS that the company “has always been clear, fair, and transparent with its customers and is committed to free tax preparation.”
“We are focused on helping tens of millions of taxpayers file their taxes by today’s deadline so they get their biggest refund, guaranteed. We look forward to responding to the letter after today’s deadline,” Mercado said.
“As we’ve maintained from the beginning, IRS Direct File is a solution in search of a problem, a drain on critical IRS resources and a waste of taxpayer dollars. Free tax preparation has been available to every American taxpayer for years, well before Direct File,” Mercado added.
To test TurboTax’s free filing promise, Warren’s staff filed a sample tax return for a senior in Arizona who is raising two grandchildren, works part time and receives Social Security and a small pension and amount of interest from a savings account.
“Despite declining to pay for all optional upgrades, in total, this taxpayer would have been charged $69 to file her federal taxes and $59 to file her state taxes. Alarmingly, the taxpayer was never notified that TurboTax had automatically switched from the free version to the ‘Deluxe’ version, which has a base cost of $69,” the lawmakers wrote.
It would cost the same taxpayer $0 to file via Direct File, the lawmakers said. They also alleged TurboTax “attempted to divert the taxpayer away from free filing options early in the process — and continued to do so throughout her federal and state tax filing process.”
The future of Direct File is uncertain. Though Treasury Secretary Scott Bessent said during his confirmation hearings that he would keep Direct File operational this year, he did not comment on the program’s future.
Powerful Republicans on Capitol Hill have made clear that they don’t think it should continue, arguing that the 2022 Inflation Reduction Act only authorized a study of taxpayers’ attitudes toward a direct, free tax filing system. Republicans rebuked the IRS last summer after it recommended making the program permanent, including Senate Finance Committee Chair Mike Crapo and House Ways and Means Committee Chair Jason Smith.
But Direct File is not yet dead, and supporters are fighting for an option they say saves taxpayers time and money.
“It is unconscionable that Intuit is engaged in an ‘aggressive’ and ‘covert’ war on Direct File, which makes it easy and free for millions of taxpayers across the country to file their taxes, while misleading, upselling, and overcharging them for your own services,” the lawmakers wrote. “You should end these abusive tactics and relinquish your efforts to eliminate Direct File once and for all.”
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Taylor Giorno is a reporter at NOTUS.