I became curious of this after seeing some “life pro tips” posts about which tax-filing services are *actually* free. Obviously the big sites will try to squeeze every dime they can out of you, while claiming to be free. But some of these sites are legitimate **and** free, and I don’t understand how they can offer these services and still turn a profit.
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It’s basically advertising for their specific companies.
They usually only offer free if you have the most basic type of tax return. W-2 income only, federal only, no itemization, etc. Have anything too interesting and the charge you. Or for auxiliary services like if you want them to keep your records on file. Then hope your situation changes next year and you become a paying client.
Also long ago the tax companies and the IRS made a deal that the companies would provide free filing options and in return the IRS wouldn’t develop it’s own system and run them out of a ton of business. Then immediately started doing as much scummy stuff to finagle money from you while you initially thought your return was actually going to be free.
Part of that is to actually get to the IRS free file partnership stuff you need to go through the IRS website here: https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
The free options offered are mostly to distract you from realizing that this exists.
Sites like TurboTax are free for normal wage working people with W2s, but if you’re a business or being paid as a subcontractor with a 1099 it costs money to use the service. It’s still cheaper than having a decetnt accountant do your taxes but you have to effectively do the work yourself. The software is easier for the average person to use, but you can still submit your taxes for free directly to the IRS.
They don’t make a profit from the free services. They are required by law to provide those free services.
It’s free *if* you meet the requirements. If you have even the smallest thing out of the ordinary, it’s not free.
I have an ebook listed on Amazon. I charge less than a dollar for it, and I might sell two copies a year. (I did it for the experience of creating and selling an ebook.) Reporting book royalties to the IRS requires a certain form. That form is enough to kick me off any “free” tax service.
I do my federal taxes myself with the IRS Free File Fillable forms, now. And (don’t tell the IRS) I wised up and no longer report miniscule amounts like these royalties or the interest my savings account earns.
For turbotax and some other tax feeling companies, it’s just a way to get you to use their products. They will tell you later that it’s not actually free for people in your situation and you have to pay to continue using it.
For credit karma tax (previously, it doesn’t exist anymore) and now cashapp tax, it is purely free and they don’t make money of it. It’s a way to advertise their other services for which you pay.
The answer is upsells.
Example, I file my taxes in 2021 and it took 30 minutes to fill in all the personal details, like ssn, wife’s ssn, address, etc.
In 2022 they allow me free service but I cannot import last years stuff. So to save a half hour, I buy the cheapest version.
That’s just one example. They got so good at forcing (well I should say, making convenient) upgrades that few people use the free service.
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