TurboTax is in hot water with the FTC for deceptive claims regarding its “free filing” services.
TurboTax is Not Really “Free,” Is It?
Anyone who files their taxes on their own terms has likely heard of Intuit TurboTax’s seemingly “free to file” services. The story is always the same. You go through the motions of preparing to file your taxes via TurboTax, only to reach a paywall at the end that claims you either don’t qualify for the free service or that the service is only partially accessible for free. Often, users are able to file their federal return for free, only to be faced with a required payment to file their state taxes. Users would begin with the free product and then be involuntarily pushed toward a deluxe or premium product in order to finish filing.
As the beginning of the new tax season is underway, the FTC is cracking down on these false, deceptive advertising methods from Intuit. The Federal Trade Commission recently upheld a previous ruling from September 2023, which found that Intuit violated a federal law through its shady marketing practices.
The Federal Trade Commission (FTC) has seen this deceptive advertising practice as unfair and unlawful. Therefore, the FTC has chosen to issue an Opinion and Final Order that Intuit, Inc. (the maker of TurboTax tax filing software) has been engaging in deceptive advertising practices that violate the FTC Act. TurboTax has repeatedly deceived its loyal consumers by running ads for their supposedly “free” tax products, which are objectively NOT free for most users who were deemed ineligible.
Ultimately, the Commission order has prohibited Intuit from claiming its products and services are free unless all users qualify for the free version. Otherwise, they must disclose the full details describing who does qualify.
“The FTC warns consumers that ‘free means free, not ‘free for a few’ or ‘free for some,’” Ed Mierzwinski, consumer advocate at U.S. Public Interest Research Group, aptly stated, “I hope Intuit gets the clear message, and passes it along to others in corporate America.”
Let’s Dig into the Specifics of the FTC Suit
Back in 2022, the FTC first sued TurboTax’s owner, Intuit, for its highly deceptive advertising. It was alleged that most taxpaying individuals were unable to utilize the company’s entirely free services. For example, folks who receive a 1099-K for their side hustles or those who earn farming-related income would have to use an upgraded version of the software to complete the filing process.
In May of that year, Intuit entered into a multistate agreement with the FTC, where they will pay $141 million to low-income taxpayers who they wrongly convinced to use the paid version of TurboTax’s supposedly “free” edition of their software. This agreement ultimately affected an estimated 4.4 million customers. The settlement began to take shape in May 2023.
In the Opinion that the Federal Trade Commission released, they expressed that Intuit had engaged in deceptive advertising, which violates Section 5 of the FTC Act. They also stated that the defenses raised by Intuit were completely unmerited, and therefore, they were ordered to cease making the false claims as outlined by complaint counsel.
The Commission voted in a unanimous 3-0 decision to issue the Opinion and Final Order. TurboTax is now banned from advertising its services as free unless they are free for all users. Otherwise, they must explicitly explain who qualifies for the free version and why.
What is Inuit’s Opinion About the Situation?
In a statement regarding the settlement, Derrick Plummer, a spokesperson for Intuit, stated, “Absolutely no one should be surprised that FTC Commissioners — employees of the FTC — ruled in favor of the FTC as they have done in every appeal for the last two decades.” He goes on to express his opinion that the decision was based on a broken, biased system where the Commission acts as “accuser, judge, jury, and then appellate judge all in the same case.” Intuit chose to appeal the decision that they deem “deeply flawed.”
The Federal Trade Commission ruling requires that Intuit must disclose clearly all of the varied terms, conditions, and obligations that are necessary for users to obtain the genuinely “free” version of their tax filing software. Intuit is also prohibited from misrepresenting any other facts about its product, including the price and the user’s ability to claim a tax deduction or credit without using the paid version of the service.
Intuit can no longer deceive customers by advertising their goods and services as “free” unless they are free for all to use. If there is a space constraint on their advertisement, they may alternately choose to clearly disclose the percentage of customers who qualify for the free service while sharing the additional terms and conditions elsewhere. Otherwise, they can conspicuously state that TurboTax is not actually accessible for free for a majority of tax filing consumers.
What Does This Ruling Mean for Previous TurboTax Users?
As of last May, approximately 4.4 million TurboTax users were scheduled to receive refund checks from Intuit. After being accused of steering eligible clients away from federally supported tax filing products and instead directing them to paid versions of TurboTax’s filing software, Intuit is now required to pay users back in the form of a $30 check for one-time users and $85 for users who utilized TurboTax for three years consecutively.
“TurboTax’s predatory and deceptive marketing cheated millions of low-income Americans who were trying to fulfill their legal duties to file their taxes,” New York Attorney General Letitia James stated in a press release from May 2023, “Today we are righting that wrong and putting money back into the pockets of hardworking taxpayers who should have never paid to file their taxes.”
The Federal Trade Commission aims to ensure all TurboTax customers are treated fairly and get precisely what they pay for (or NOT pay for, as the case may be) and specifically what Intuit is advertising.
