No one likes to think about taxes, but last week New York Attorney General Letitia James had good tax-related news for 4.4 million low-income American consumers in 51 U.S. states and territories. Eligible consumers will share in a $141 million settlement from TurboTax parent Intuit as part of a multi-state settlement agreed to in May 2022. TurboTax was accused of unfairly charging low-income Americans for the tax-filing software when it should have been free.

“TurboTax’s predatory and deceptive marketing cheated millions of low-income Americans who were trying to fulfill their legal duties to file their taxes,” said Attorney General James in a May 4, 2023 news release. “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. I thank my fellow attorneys general for their partnership in this effort to stand up for ordinary Americans and hold companies who cheat consumers accountable.”

Eligibility

Eligible consumers include those who paid TurboTax to file their federal tax returns for tax years 2016, 2017 and 2018 but who were eligible to file at no cost through the IRS Free File Program. Low-income for the purposes of the program is determined by adjusted gross income. In 2016, the threshold for adjustment gross income was $64,000, reports the Free File Alliance.

Eligible consumers will be contacted by Rust Consulting, a third-party administrator, via email regarding the settlement. Consumers will not need to file a claim to collect their refund, nor will they have to pay a fee or provide account information to receive their portion of the settlement. Checks will be mailed out this month.

How much each consumer receives will depend on the number of years for which they are eligible to file federal taxes for free. Most consumers will receive between $29 and $30, but consumers who filed for all three years may get up to $85. More information about the settlement is available at AGTurboTaxSettlement.com.

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Intuit’s response

In the settlement, Intuit did not admit any wrongdoing, they agreed to pay a settlement of $141 million, and they made “certain commitments” regarding their advertising practices. At the time of the multi-state agreement, Intuit said they were already adhering to “most” of the advertising practices, and they did not anticipate any significant impacts to their business operations from implementing changes.

“Intuit is pleased to have reached a resolution with the state attorneys general that will ensure the company can return our focus to providing vital services to American taxpayers today and in the future,” said Kerry McLean, Intuit’s executive vice president and general counsel, in a May 4, 2022 news release.

“Intuit is clear and fair with its customers, including with the nearly 100 million Americans who filed their taxes free of charge with our products over the last 8 years — more than all other tax prep software companies combined. In coming to a resolution on this matter, we admitted no wrongdoing and are pleased to be able to continue our strong partnership with governments to best serve the needs of taxpayers across the country,” McLean added.

FTC complaint against Intuit

This $141 million settlement does not impact an administrative complaint filed against Intuit by the Federal Trade Commission in March 2022.

“TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file,” said Samuel Levine, Director of the Bureau of Consumer Protection, in a March 29, 2022 news release. “We are asking a court to immediately halt this bait-and-switch, and to protect taxpayers at the peak of filing season.”

In January 2023, the FTC denied a motion by the Bureau of Consumer Protection which sought a summary judgment against Intuit. In a 4-0 vote, commissioners for the FTC expressed concern that a summary decision would not allow the merits of the case to be fully explored. The case is still pending.

Link to subscriptions

This settlement does not directly deal with subscriptions. However, parent company Intuit owns several subscription-based companies including QuickBooks, starting at $15 a month; Mailchimp, which uses a freemium model; and Mint which offers Mint premium for $4.99 a month. The company also owns CreditKarma which is free to use. The FTC has also taken action against CreditKarma, requiring the company to pay $3 million and stop deceptive claims of “pre-approved” credit offers.

The TurboTax settlement did not impact Intuit’s second quarter results for fiscal year 2023, which ended January 31, nor will it impact the third quarter of fiscal year 2023 which ends April 30. For the second quarter, Intuit reported total revenue of $3.0 billion, a 14% increase year-over-year. Revenue in all categories increased year-over-year except Credit Karma revenue which was down 16%.

In their second-quarter earnings report, Intuit reiterated their full-year guidance, expecting revenue growth between 8% and 9%. Intuit will report its third-quarter financials on May 23. This report will not include the impact of the $141 million settlement, but it will be reflected in the fourth-quarter and full-year financials.

Insider Take

The wheels of justice turn slowly. The settlement order was agreed upon by all parties in May 2022, but the settlement is not actually being paid out until this month. Given that 51 states and territories and Intuit had to agree on the terms, perhaps the delay is to be expected. It will be interesting to see how the FTC pursues their case against Intuit and, given the settlement already proffered, how additional penalties might be imposed.

We find it concerning that Intuit-owned CreditKarma was also in the hot seat for deceptive advertising claims. Is this a pattern of internal behavior that’s accepted at Intuit? Are Mint, QuickBooks and Mailchimp being looked at too? There is a lot to unpack here. The $141 million settlement may just be the beginning.

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