Buzz
As tax season approaches, you may be unsure about which software suits your needs best. While there are many choices, including newer options like Credit Karma, many people still choose TurboTax as their go-to. However, even the most popular tax software isn't without its issues.
The not-so-hidden truth about tax filing is that the IRS already has most of your details. It receives the same forms you get each year: W-2s, 1099s, investment documents, and so on. If you're using the standard deduction, the IRS already has the information it needs to auto-fill your tax forms.
However, due to lobbying efforts by companies like Intuit, the owner of TurboTax, the IRS doesn't automatically fill out your tax forms, despite having the necessary data. Here's what Vox's Dylan Matthews had to say (his emphasis):
TurboTax is a harmful, parasitic product designed to thrive on the complexity of taxes and how difficult they are to navigate. Worse, Intuit has been one of the most vocal companies lobbying against efforts to make tax filing easier. The Obama administration once proposed a system of automatic tax filing, where the IRS would use existing income information to complete your tax return. This would save countless Americans valuable time each year, but the idea has gone nowhere, largely due to lobbying from Intuit and H&R Block.
Automatic tax filing isn't a new idea—it's been suggested by both Democrats and Republicans in the past. While it wouldn't apply to everyone, especially those who itemize, it could work for tens of millions of Americans, according to ProPublica. The process would only take five minutes, and best of all, it would be free.
However, this system isn't in place, largely because Intuit spends an immense amount—$13 million between 2011 and 2015—lobbying Congress to ‘promote voluntary compliance,’ a euphemism for opposing automatic filing, as Matthews points out. ProPublica’s 2013 investigation revealed that Intuit spent more on lobbying in those five years than Amazon and Apple combined during the same period.
And that’s because, well, Intuit profits immensely from selling tax software annually. In 2016, a reported 31 million people used TurboTax, more than any other service.
It's an inconvenience for everyone, but as Matthews notes, requiring individuals to complete their own forms and navigate the U.S. tax system’s complexities especially hurts low-income taxpayers who qualify for certain tax credits, including the earned income tax credit.
“Twenty percent of people eligible for the EITC don’t receive it, and a large percentage of returns are incorrect, often due to the credit's complexity and errors by commercial tax preparers,” Matthews explains. Naturally, those who can afford top-tier tax professionals tend to fare much better.
Alternatives to TurboTax
Sites like Wirecutter continue to recommend TurboTax for its user-friendly interface. However, as noted by The College Investor, it’s also one of the priciest options, and many of the free claims it makes are misleading, as explored in this Reddit thread. If you'd prefer not to give more money to TurboTax and Intuit, there are alternatives.
The simplest approach is to manually fill out your taxes. You can download the necessary forms for free from the IRS website and mail them in. But this method is not ideal—it’s tedious, confusing, less secure, and more prone to errors compared to filing online.
If you’d prefer to use tax software to ensure accuracy and avoid fraud, start by checking out the IRS’s Free File portal to see if you qualify for free filing software. Note that you must go through the IRS website to truly access the free option, even if the software's own site claims otherwise. If your income is under $66,000, you’re eligible for free federal filing.
Be cautious of tax software, including TurboTax and others, that advertise free filing. These services often upsell you at every turn, especially if you want a “bigger refund,” which typically means paying for itemization or adding forms like one for a Health Savings Account. This is a common tactic to push you towards the “deluxe” version of the software.
Credit Karma Tax, now in its third tax season, remains free for both federal and state returns, regardless of your income. FreeTaxUSA provides free federal filings and charges $12.95 for state filings. H&R Block’s online tool is easy to use, and it quickly becomes clear whether you qualify for free filing or not (much like TurboTax, if you have additional forms like an HSA or are a freelancer, you may need to look elsewhere). As noted by ProPublica, H&R Block also lobbies against automatic filing. Here are state-by-state resources for filing for free.
The downside is that filing your taxes might take a little longer this year. Convenience is addictive, but if you're looking to fight back against a system that makes you pay to file information the government already possesses, consider exploring a free alternative to TurboTax.
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