TurboTax's 'free' file deal turned into $217 bill for frustrated taxpayer: What to know

Last-minute tax filers don't want to wait until the very last minute to discover that "Free, Free, Free" really adds up to seeing around $100 or $200 leave their wallet.

Intuit's TurboTax TV ads, and they were all over the place this year, attempted to lure consumers with the notion that they're about to get access to absolutely free online tax preparation services.

But it was not true much of the time, based on a complaint filed by the Federal Trade Commission against Intuit, the parent of TurboTax.

The administrative complaint seeks to stop Intuit from engaging in deceptive advertising, marketing, promotion, distribution and sale of online tax preparation products and services, including TurboTax.

Customer looks at a copy of TurboTax on sale at Costco in Mountain View, Calif., Tuesday, Jan. 24, 2012. The software available for the 2012 tax season has been both beefed up and made easier to use.

Free? Sure, for simple tax returns, the FTC states.

TurboTax stands its ground

Intuit is vigorously challenging the FTC complaint and in an online blog noted: “The FTC’s arguments are simply not credible."

The "free advertising campaigns have led to more Americans filing their taxes for free than ever before and have been central to raising awareness of free tax prep,” according to Kerry McLean, executive vice president and general counsel of Intuit.

“Over the past eight years, TurboTax products have helped nearly 100 million Americans file their taxes for free, and our most recent free advertising campaign has only accelerated the use of TurboTax free offerings, driving approximately 60% growth from 11 million free filers in 2018 before the campaign launched to more than 17 million free filers in 2021.”

And in a legal filing dated Tuesday in the ongoing FTC case, the company said it had volunteered to and did pull down most of the "free, free, free" ads previously scheduled for the remainder of the tax season and the remainder would be "down by Friday."

'It was deceptive'

Like free checking — where many people who live paycheck-to-paycheck got hit with high overdraft fees over the years — many cannot bank on a free ride. After doing your taxes, you could be told that you need to "upgrade" and pay for a more specialized online tax service.

Karen Reynolds, of Rochester Hills, spent about two hours working on her tax return online through TurboTax. She saw the TV ads, had success in the past doing her daughter's taxes for free through TurboTax and fully expected that TurboTax wouldn't charge her a dime.

Free in her case, though, added up to $78.

Once the work was done, Reynolds discovered that TurboTax wanted her to pay $39 each for her Michigan income tax return and her federal return.

"I went, 'Wait a second. When I signed up for this, it was going to be free,'" Reynolds told me.

"It was deceptive."

Reynolds, 68, is retired from her job at Troy Beaumont Hospital but she had gone back to work periodically as an ultrasound technologist at the hospital.

She could not work when the hospital didn't offer outpatient services, such as the ultrasounds, in much of 2021. She collected unemployment benefits and this year received a 1099-G to report those benefits, which are taxable on 2021 returns.

Karen Reynolds, of Rochester Hills, spent about two hours working on her tax return online through TurboTax, thinking it would be free. When she was told it would cost $78, she stopped the process and looked at "Free File" at IRS.gov for another free product.

Reynolds wanted to do her taxes in January but had to wait until late February when the State of Michigan finally issued its 1099-G forms.

She wasn't sure why TurboTax was suddenly charging her for their services. No idea.

What happens if you were jobless in 2021?

While TurboTax did respond to the Free Press request for a statement and information about the ads going forward, it did not respond to specific questions sent Wednesday.

For the current tax year, the FTC noted in its complaint that TurboTax online defines a "simple” tax return "as a return that can be filed on a Form 1040 with limited attached schedules to cover a few distinct tax situations, including student loan interest paid."

In 2021, though, the complaint noted that the "simple" definition included claiming unemployment income.

Looking online, TurboTax states that it doesn't include the 1099-G form for unemployment benefits in its free services online — which, no, isn't mentioned as someone on the ads rattles off the words "Free. Free Free."

It is possible the 1099-G is what threw Reynolds into the "upgrade" category for the 2021 return.

Confused? Who wouldn't be?

Let's face it, you shouldn't need an accounting degree to know what's free and what isn't.

Reynolds, though, is a resourceful retiree. She didn't pay the $78 after two hours of work on her taxes.

She decided to go to IRS.gov and find a free tax preparation service that applied to her through irs.gov/filing/free-file-do-your-federal-taxes-for-free.

If your adjusted gross income was $73,000 or less in 2021, you can use free tax software from various providers to prepare and e-file your tax return at IRS.gov.

All was not lost. After doing her taxes online at TurboTax, she realized that she'd be better off taking the standard deduction instead of itemizing. And she took another half-hour to 45 minutes to complete the return for free via the "Free File" system.

Karen Reynolds, of Rochester Hills, spent about two hours working on her tax return online through TurboTax. She expected it to be free, as advertised. But the price would have been $39 each for her federal and state return back in late February.

Others, though, throw up their hands and just pay to get the whole thing done and out of their hair.

TurboTax has long been associated with "free" services and that's led some to be willing to pay now.

Linda Orlandi, a music teacher in Wisconsin, told me for the past two years she's been able to use TurboTax's tax preparation services online for free. She's fairly sure but not 100% that she went through IRS.gov then to do so.

This year, TurboTax was no longer participating in the free IRS program but it did have lots of ads on TV and online for free services.

Orlandi, 41, is single with no children and no mortgage. She thought her taxes would be fairly simple and she'd qualify for free services, given all the TurboTax promotions.

Linda Orlandi, a music teacher in Wisconsin, has been to use TurboTax's tax preparation services online for free for two years. But this season, she paid $217. FTC says TurboTax's ads are deceptive.

When she went to TurboTax.com, she soon realized that a piece of paper in her tax files, a 1099-NEC for her work as an independent contractor, meant that TurboTax would charge her a fee. She taught music in Catholic grade schools in Chicago last year but wasn't employed on staff so that triggered the 1099.

Orlandi — who made far less than the $73,000 threshold for "Free File" at IRS.gov — would have qualified for other free tax preparation services at IRS.gov. But she thought using TurboTax would be easier.

She ended up spending four hours and paying $217 earlier this week to complete a federal return plus two state income tax returns. She had moved from the Chicago area to Waukesha, Wisconsin, last year for a new job as teacher on staff with a W-2.

"I used TurboTax because I thought if I just paid for it it would be easier, but I regret it," she told me.

"Next year, I'll do something that's free from the IRS."

What she'd really like to see is the IRS roll out its own free tax filing software, which has been proposed by U.S. Sen. Elizabeth Warren, D-Massachusetts.

Free. Free. Free.

We saw TurboTax commercials all the time where "almost every word spoken is the word 'free,'" according to the FTC complaint.

A TV ad titled “Auctioneer" depicts a cattle auction with a fast-talking auctioneer and a bunch of cowboys and even finds mention in the FTC complaint.

The auctioneer shouted: "And free, and free, and free, and free, and free. Now a bidder and free! Now give me another bidder and free, and a free here and a free free free a free free free. Now a bidder and free! Now give me another bidder and free, and a free free free."

The commercial voice-over stated: "That’s right, TurboTax Free Edition is free. See details at TurboTax.com."

Free for who? Maybe not for you.

"For many others, Intuit tells them, after they have invested time and effort gathering and inputting into TurboTax their sensitive personal and financial information to prepare their tax returns, that they cannot continue for free," according to the FTC complaint.

"They will need to upgrade to a paid TurboTax service to complete and file their taxes."

Most tax filers can’t use the TurboTax's “free” service, the FTC said, because it is not available to millions who get a 1099 form for work in the gig economy or those who earn farm income.

"In 2020, for example, approximately two-thirds of tax filers could not use TurboTax’s free product," according to the FTC's press release.

Samuel Levine, director of the FTC's bureau of consumer protection, wants to put a stop to the "bait-and-switch."

“TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file,” Levine said in a statement.

If you go to TurboTax.com, as I did Wednesday, you'll see icons for specific tax situations.

Click on "I own a home" and "I have children or dependents" and TurboTax recommended a Deluxe version for $59 for the federal return and an extra $49 for state returns.

I did not see an icon, though, for "collected jobless benefits" so that can be confusing, too.

The "Premier" version — which includes investments and rental property — was $89. And again, $49 for state income tax returns.

The "Self-employed" version was $119. And again, $49 for state income tax returns.

It all adds up and it is not free. But each icon has a button that says "Start for free. Pay only when you file."

At various times, discounts might be available. But you must spend time online trying to figure out what's not free before trying to do your taxes on TurboTax.com.

More: Want to file your tax return for free? TurboTax opts out of major program

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More: Michigan jobless claimants won't get key tax form until end of February

More: Michigan releases key tax forms for those who were jobless last year

Earlier this year, TurboTax announced a new "$0 Any Way" offer, which the company said will apply to about 60 million filers with a simple tax return. There are no income restrictions.

Last tax season, the company said earlier, more than 17 million people filed their taxes with TurboTax and paid nothing, which was more people than in any year in company history.

TurboTax said it expanded its free offer this year, allowing filers with simple returns to file completely free of charge using its different services.

Much of the confusion, I believe, is because some things that were free last year aren't free this year.

I wrote a column in January to alert taxpayers that TurboTax stopped participating in the IRS Free File program at IRS.gov this tax season. TurboTax had officially released the news in July 2021 when, frankly, many people were not thinking about taxes.

TurboTax was the second big name to drop out. H&R Block exited Free File in October 2020.

Big names, like Intuit's TurboTax and H&R Block, faced much criticism in 2019 after a ProPublica investigation detailed how the companies limited the "Free File" reach by making free options more difficult to find online and instead figuring out a way to steer eligible taxpayers into products that weren't free.

The latest fuss focuses on deceptive ads that, according to the FTC, "then compound the deception with more false claims and buried disclosures."

TurboTax has a list of options that very easily could be confusing.

Tax filers using TurboTax Live Basic, for example, could file a simple return and pay nothing if they filed through March 31. This product offers help from a tax expert along the way.

TurboTax Free Edition, according to the company, is available the entire season. Again, pay attention to words like "simple return."

Who has a simple return?

TurboTax Free Edition, according to the company, can help tax filers whose tax situations include W-2 income, limited interest and dividend income, those opting to take the standard deduction, as well as those who claim the earned income tax credit, child tax credit, and report student loan interest.

What if you're going to try to deduct mortgage interest — and not take the standard deduction? You're not able to use the TurboTax Free Edition. The same's true if you have a 1099-G for reporting taxable income received from unemployment compensation. And you cannot use the TurboTax Free Edition if you had sold stock in 2021, had rental property income, freelance income or income as someone who is self-employed or an independent contractor.

Free. Free. Free.

The TurboTax model involves building a brand name, using the "free" promise as a way to attract loyal consumers and getting them to pay when their taxes turn out to be more complicated.

But are our lives really that unusual or complicated because we own a home or have children? Or we lost work during the pandemic and needed to file for unemployment?

Contact Susan Tompor via stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.

This article originally appeared on Detroit Free Press: TurboTax 'free' file deals targeted for deceptive advertising