Free File Alliance Explained

The Free File Alliance is a group of tax preparation companies which operate a public-private partnership with the Internal Revenue Service (IRS) to provide free electronic tax filing services under the IRS Free File program to United States taxpayers meeting certain guidelines.[1] The IRS stipulates filers must have an adjusted gross income (AGI) of $73,000 or less for tax year 2022 to qualify, but participating companies can set their own requirements and restrictions.[2] The IRS Free File program is a compromise between the IRS and for-profit tax software companies that enables lower and middle-income filers to file their taxes for free while ensuring the IRS does not develop its own free-to-use tax software that would compete with private, for-profit tax software companies.

Free File Alliance is a 501(c)(4) organization registered as Free File, Inc., and based in Clifton, Virginia. Its executive director is Tim Hugo. While many of the Free File Companies offer free state income tax returns, some companies do charge additional fees of $10 to $30 to electronically file state returns.[3]

As of the 2021 tax filing season, the two most used tax-filing software programs (TurboTax and H&R Block) no longer participate in the Free File program. With the two largest members of the Free File Alliance ending their participation in the Free File Program, there have been renewed calls for the IRS to develop and offer its own free tax-filing software to taxpayers.[4]

Current Alliance members

For tax year 2023, there were 8 participating Alliance members with the following requirements to qualify to use their software for free under the Free File program:[5]

The free state and federal tax filing services provided by MyFreeTaxes, sponsored by the charitable organization United Way, and Cash App, which sells targeted advertising based on return data, are unrelated to the Free File program.[6] [7]

Criticism

Significant under-use

In a typical year, about 70% of filers (roughly 100 million people) are eligible to use Free File,[8] but only about three million do, according to Tim Hugo, the FFA's executive director.[9] In 2019, for example, only 2.7% of the 104 million taxpayers eligible for Free File used it, while 34.5 million taxpayers eligible for Free File actually paid for tax software offered by companies in the Free File Alliance.[10]

Difficult to use

A 2019 audit of the Free File system by the Treasury Inspector General for Tax Administration found that "the process taxpayers must follow to participate in the Free File Program is obscure and complex, and there is a lack of adequate advertising and oversight of the Program by the IRS".

Deliberate efforts to hide Free File services

The Free File Alliance has taken deliberate steps to hide its free services so that most filers continue to use paid tax preparation services.[11] Methods used by the FFA to hide its free services and steer filers towards paid services include deliberately hiding free services from Google search results,[12] [13] deceptively marketing commercial tax preparation services as free and then upselling users paid services even when they are eligible for Free File,[14] not including links to Free File services on their websites (TurboTax's Free File service, for instance, was not available on TurboTax.com),[15] using dark patterns to push users towards paid services, and using confusing naming practices (for example, TurboTax called its Free File service the "Freedom Edition").

Lobbying efforts

The Free File Alliance (FFA) was largely organized by Intuit, and guided by a former lobbyist for the company. In 2019, ProPublica reported that tax preparation agencies used the Free File Alliance to head off the potential "encroachment" by the IRS, which could offer its own tax preparation service or introduce return-free filing. In exchange for Intuit, H&R Block, and other members providing Free File options, the IRS was restricted from providing its own free filing tool.

In 2020, the rule barring the IRS from designing its own filing service was lifted and providers were prohibited from hiding Free File options from search results.[16] Despite publicly announcing their support for the changes,[17] Intuit (the maker of TurboTax), as well as H&R Block, announced that they would be leaving the Free File Alliance.[18]

Paid ancillary services

In 2007, Alliance members agreed to remove controversial ancillary offerings such as refund anticipation loans from the program, after half of Free File users making ancillary purchases stated their purchases were not intended.[19] [20]

See also

External links

Notes and References

  1. Web site: Free File: Do your Federal Taxes for Free. 2023-02-16. Internal Revenue Service. en.
  2. Web site: phuong_cat_le . File your taxes free, but read carefully. seattlepi.com. April 12, 2019. March 20, 2008.
  3. Web site: Reviews of Free Tax Preparation Programs. Perez. William. August 5, 2016. thebalance.comaccess-date=2016-09-04.
  4. Web site: The IRS has a big opportunity to fix the way Americans file taxes. 13 August 2021.
  5. Web site: IRS Free File Online: Browse All Offers. 16 Feb 2024. Internal Revenue Service.
  6. News: 2021-02-11. The Best Online Tax Filing Software. en-US. The New York Times. 2021-07-09. 0362-4331. What’s the catch? As far as we can tell, there isn’t one... This is a service provided by the charitable organization United Way to anyone and everyone..
  7. News: Review When tax prep is free, you may be paying with your privacy. en-US. Washington Post. 2021-07-09. 0190-8286.
  8. Web site: Do Your Federal Taxes For Free. live. https://web.archive.org/web/20211201180028/https://www.irs.gov/pub/irs-utl/How%20to%20Free%20File%20Infographic_508%20FINAL.pdf. December 1, 2021. December 6, 2021. Internal Revenue Service.
  9. Web site: Carrns. Ann. February 3, 2017. Navigating the Many Offers of Free Tax Help. The New York Times.
  10. Web site: February 3, 2020. Complexity and Insufficient Oversight of the Free File Program Result in Low Taxpayer Participation. live. https://web.archive.org/web/20211018021639/https://www.treasury.gov/tigta/auditreports/2020reports/202040009fr.pdf. October 18, 2021. December 6, 2021. treasury.gov. Treasury Inspector General for Tax Administration.
  11. Web site: Kiel. Justin Elliott,Paul. Inside TurboTax's 20-Year Fight to Stop Americans From Filing Their Taxes for Free. 2021-01-10. ProPublica. en.
  12. Web site: Elliott. Justin. TurboTax Deliberately Hid Its Free File Page From Search Engines. 2021-01-10. ProPublica. en.
  13. Web site: Welch. Chris. April 26, 2019. TurboTax intentionally hides its free tax filing service from Google search results. live. https://web.archive.org/web/20211011110609/https://www.theverge.com/2019/4/26/18518211/turbotax-free-tax-filing-hidden-google-search-results. October 11, 2021. December 6, 2021. The Verge.
  14. Web site: Elliot. Justin. Waldron. Lucas. April 22, 2019. Here's How TurboTax Just Tricked You Into Paying to File Your Taxes. live. https://web.archive.org/web/20211203182130/https://www.propublica.org/article/turbotax-just-tricked-you-into-paying-to-file-your-taxes. December 3, 2021. December 6, 2021. ProPublica.
  15. Web site: Chaudhry. Aliya. 2020-01-01. The IRS is done letting TurboTax easily steer you away from filing taxes for free. 2021-01-10. The Verge. en.
  16. Web site: Elliot. Justin. Kiel. Paul. December 31, 2019. IRS Reforms Free File Program, Drops Agreement Not to Compete With TurboTax. live. https://web.archive.org/web/20211203174753/https://www.propublica.org/article/irs-reforms-free-file-program-drops-agreement-not-to-compete-with-turbotax. December 3, 2021. December 6, 2021. ProPublica.
  17. Web site: December 30, 2019. Strengthening the Free File Program. live. https://web.archive.org/web/20211119101823/https://www.intuit.com/blog/news-social/strengthening-the-free-file-program/. November 19, 2021. December 6, 2021. Intuit.
  18. Web site: Elliot. Justin. Kiel. Paul. July 16, 2021. TurboTax-Maker Intuit Will Leave Free Tax Filing Partnership With IRS. live. https://web.archive.org/web/20211203165520/https://www.propublica.org/article/turbotax-maker-intuit-will-leave-free-tax-filing-partnership-with-irs. December 3, 2021. December 6, 2021. ProPublica.
  19. News: 2006-12-06. No More Loan Solicitations in Free Tax-Filing Program. en-US. The New York Times. Associated Press. 2021-02-25. 0362-4331.
  20. Web site: 5 December 2006. RALs Removed on Free File; 93 Million Eligible for Program. 25 February 2021. Internal Revenue Service.

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