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TurboTax Ends Free Filing With IRS Ahead of 'Challenging' Tax Season

Americans who have filed their taxes directly to the IRS for years are now in for a change.

If you use TurboTax and planned to file your taxes for free through the Internal Revenue Service's site, you may be in for an unpleasant surprise: the tax filing software company says that it will no longer use the agency's Free File program.

The IRS online program would for years allow information from TurboTax to be synced with the official system for free for filers earning less than $72,000 a year. 

What's Up With Free File?

While the larger company Intuit INTU quietly released the news that it was opting out of Free File in July, it largely slipped under the radar until USA Today first resurfaced it earlier this month.

"Intuit has elected not to renew its participation in theIRS Free File Program and will no longer be offering IRS Free File Program delivered by TurboTax," the company says on its website.

To file with TurboTax (the company recently reported serving 100 million customers across TurboTax, QuickBooks, Mint and Credit Karma), users will need to pay for the software — those below a certain income threshold qualify for a free version and there is currently a promotion for others based on when they sign up and the simplicity of their taxes. To use FreeFile, users will need to fill out the return independently.

The IRS has already warned that this year there could be serious delays in getting refunds to Americans due to a combination of the pandemic, budget cuts and understaffing. The agency is still navigating a backlog "crisis" that caused a number of delays, particularly for those filed with the Free File system, last year.

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The company named "limitations of the Free File program" and wanting to focus on "further innovating in ways not allowable under the current Free File guidelines" as the reasons it was canceling the partnership. 

Another major filing company, H&R Block  (HRB) - Get H&R Block, Inc. Report, also left the Free File program in October 2020.

What Do I Need To Know About Filing This Year?

Along with the income limitation, there were already limits on who could file for free. The free service offered by TurboTax is limited to simple tax returns while more complicated returns (often required for small business owners) come with additional costs and accounting advice. 

While Intuit says that it "remains committed to free tax filing," it is unclear whether this change will make it easier or more difficult for eligible people to file for free.

It now appears that companies making tax filing software are quickly moving toward their own systems for filing — but this year may be a challenge for users accustomed to filing automatically with the IRS.

What's more, helping people find free ways to file their taxes is far from the best interests of companies creating filing software — a series of 2019 articles from ProPublica drew attention to how various tax prep companies have been trying to sell paid options instead of navigating consumers toward free ones.

"This decision will allow us to focus on further innovating in ways not allowable under the current Free File guidelines and to better serve the complete financial health of all Americans through all of our products and services, in tax preparation and beyond," the company said.