When the major tax preparation brands TurboTax, made by Intuit and H&R Block, say they'll file income tax returns at no cost, it only applies to certain people.
Live a straightforward financial life with few complications or sources of income? The two major players in mass market tax preparation say they'll do your return for free. But if your tax return has a few financial wrinkles, TurboTax and H&R Block will collect money from you, depending on the fine print.
For example, INTU from Intuit,
TurboTax and H&R Block HRB,
He says users will have to pay for tax returns that will report stock and cryptocurrency sales. The same applies if the taxpayer has income to report from gig work.
There can also be additional costs for some tax preparation services. Want some AI help from H&R Block? Pricing starts at $35 for a federal return and $37 for a state return.
TurboTax says its AI-powered tax help is available on all of its free products this tax filing season. TurboTax Live Assisted Basic, which allows taxpayers to ask tax professionals questions in real time, will also be free through March 31, according to a spokeswoman. But only customers who have “limited credits” — meaning they have a simple tax return and claim the Earned Income Tax Credit or Child Tax Credit, but no other tax credits — can take advantage of this offer.
Tax software pricing is a sticky topic this tax season. Last week, the Federal Trade Commission ruled that TurboTax used deceptive advertising for years when it promoted its free services without clearly stating that many taxpayers didn't qualify for its free option.
Intuit said it would appeal the FTC's “deeply flawed” decision and insisted to regulators that its disclosures were adequate. TurboTax now says about 37% of tax filers qualify for its free version, and some of its current TV ads highlight that.
Meanwhile, Intuit has filed a lawsuit against H&R Block, alleging that H&R Block's ads mislead potential customers about TurboTax prices and how competitors compare. H&R Block responded in court papers that Intuit “aggressively seeks to avoid legitimate comparative pricing advertising.” The two companies declined to comment on the lawsuit.
Overall, it's “incredibly challenging” for people to understand whether free tax preparation offers really apply to them, said Nina Olson, a former national taxpayer advocate for the IRS.
The “up-selling problem” — where clients start filing a tax return thinking it will be free, but then the tax preparation company ends up charging them — has been a problem for at least two decades, and it's not limited to anyone, said Olson, who retired from IRS to start a nonprofit Center for Taxpayer Rights.
Olson is fine with tax preparation companies that only offer free tax preparation for “plain vanilla” returns. She noted that taxes are complex. “But transparency is great, and that's what we have to improve on, so that consumers know what they're signing up for,” Olson said.
Both TurboTax and H&R Block say they deal directly with consumers. Here are MarketWatch details on who qualifies for the free versions of TurboTax and H&R Block, and tips on other ways to file your taxes for free, including IRS Direct File, IRS Free File, and other free programs.
Who is eligible for TurboTax Free Trial?
The free version of TurboTax is available to people who use Form 1040 (the primary type of income tax form) to file their taxes, and who file only “limited credits,” meaning the Earned Income Tax Credit and the Child Tax Credit, but no others.
TurboTax says its free version can handle employer-paid wages reported on a W2. It can also support income from interest and dividends reported on a 1099-INT or 1099-DIV that is less than $1,500. (Amounts above this amount require Schedule B and the free version will not cover this.)
It can also handle taxes associated with money coming from a retirement account, such as a 401(K), or annuity, a company spokeswoman said.
The free version of TurboTax applies the standard deduction, which most taxpayers use instead of itemizing their deductions. It also applies an interest deduction for student loans.
But the free version will not support income from unemployment benefits, capital gains taxes, business income, or self-employment taxes. It is also not designed for taxes on money paid to an independent contractor, which generally comes under a 1099-NEC.
The free version has no income cap and covers federal and state returns, according to an Intuit spokeswoman. Credit Karma, also owned by Intuit, has a free offering for people who didn't use TurboTax last year and can handle more tax complexity, the spokeswoman noted.
More than 10 million people file their taxes for free with TurboTax each year, Entwit said in court papers and elsewhere.
Who is eligible for the free version of H&R Block?
Similar to TurboTax, the free version of H&R Block is mostly limited to taxpayers with relatively simple returns filed on the 1040 — but it has more capabilities than the free TurboTax product.
Federal and state returns filed with H&R Block Online can be made free of charge, according to the company. The free return supports income from W2 wages, Social Security income, unemployment benefits, interest, and earnings of less than $1,500. Regular retirement distributions drawn from accounts such as a 401(k) may fit the free version, depending on the taxpayer's circumstances.
It deals with the child tax credit and the earned income tax credit. It also applies the standard deduction and the interest deduction for student loans and education credits. It can also handle the American Opportunity Credit and Lifetime Learning Credit, which are tied to a qualifying person's educational pursuits.
There is also no income limit on H&R Block's free offer, as long as taxpayers stick to the applicable credits and deductions.
How do I file my taxes for free with IRS Direct File?
The IRS Direct File platform, the government-run version of free tax preparation software, deliberately started small, IRS officials said. It will be available to residents of 12 states starting around mid-March. Similar to the free versions of TurboTax and H&R Block, only certain taxpayers are eligible to use Live File.
It can handle income reported on W-2 job wages, unemployment benefits, and Social Security payments. It can also handle interest income up to $1,500. It applies the child tax credit, the earned income tax credit, deductions for student loan interest and a $300 out-of-pocket expense for teachers.
But Direct File cannot process the tax credit for families with health insurance through the Affordable Care Act exchange. It also cannot handle provisions such as the “savings credit” for retirement contributions, independent contractor funds, or capital gains.
The 12 states where the live file will be available are: Arizona, California, Florida, Nevada, New Hampshire, New York, Massachusetts, South Dakota, Tennessee, Texas, Washington State, and Wyoming.
Another free tax preparation option: IRS Free File
While taxpayers will have to wait for the IRS Direct File platform, there is another free option ready to use now: the IRS Free File program.
To qualify for IRS Free File this year, households can get up to $79,000, which is roughly 70% of households.
The Free File program is an IRS partnership with some tax software companies — but not TurboTax and H&R Block. The program has been running for two decades, but few taxpayers take advantage of it. “It's a good product. We just need more people to know about this,” said Tim Hugo, executive director of the Free File Alliance.
This year, the program includes eight tax software providers and some of them are offering free state returns as well as free federal returns. One caveat: Some providers set income caps for their free file offers at levels below $79,000.
The eight providers are: 1040Now; 1040.com; ezTaxReturn.com; FileYourTaxes.com; online taxes; TaxAct; FreeTaxUSA; And the tax fighter.
“Free File can provide a large number of services,” Hugo said. “You can have very complex returns,” he added. Free file providers offer the same customer service to their free clients and their paying clients, Hugo said.
The IRS has a list of tax scenarios that free file providers can handle. They include capital gains and losses, self-employment taxes, and child and dependent care expenses — all of which are not included in the free versions of TurboTax and H&R Block, or IRS Direct File.
Through May 2023, the IRS took 2.7 million free-file returns, a 10% decline year-over-year, according to the Treasury Department watchdog.
Other ways to get free tax preparation help
There are other free tax preparation programs supported by the IRS. They include the Voluntary Income Tax Assistance Program and the Tax Counseling Program for the Elderly.
Income limits are generally around $64,000 for VITA. The TCE program is intended for taxpayers age 60 and older. Here is the link where you can find nearby organizations participating in the VITA and TCE programs.
The people who do these tax returns are IRS-certified volunteers. The IRS says hours and services may be limited. But these volunteers can file basic tax returns, along with IRA distributions, pension income, simple forms of capital gains, self-employment income, and some itemized deductions.
