As Californians file their 2023 taxes, it is estimated that 70% could qualify for free online help preparing and filing their federal returns. But in the past, only a small percentage of them have taken advantage of these services.
State and local officials have long blamed the lack of participation on two leading tax preparation companies, Intuit (maker of TurboTax) and H&R Block, and have sued both for misleading the public about free offers. On Monday, the Los Angeles City Attorney's Office announced that H&R Block had agreed to settle the city's lawsuit and refund customers up to $1.6 million.
The announcement follows the $141 million settlement that 51 state attorneys general reached with Intuit in 2022. TurboTax customers received a refund last year; Now it's the turn of H&R Block customers.
“With the tax filing season beginning today, this settlement is a reminder that millions of taxpayers are eligible to file their federal tax returns for free,” the city attorney said. Hydee Feldstein Soto said in a statement. “I'm pleased to be able to give $1.6 million back to people who shouldn't have paid for a free service.”
H&R Block Chief Legal Officer Dara Redler said in a statement that the tax preparation company was also “pleased to be able to resolve this matter.”
Here's what you need to know about the H&R Block deal, who will be eligible to receive payments, when payments will be made, and what alternatives are available to the free services offered by H&R Block and Intuit.
What was the lawsuit about?
As with the Intuit lawsuit, the dispute with H&R Block centered on the company offering two free tax filing products. One was a basic, free version of H&R Block's paid service, the other was H&R Block's version of the IRS Free File service.
The key difference is that Free File is available to anyone who earns less than the income limit set each year by the IRS, regardless of how they earned their money, while H&R Block's basic service is primarily for earners with very simple returns. . People who tried to use H&R Block's free service with more complicated results (for example, those with income from jobs or other forms of subcontracting) were told they needed to upgrade to the company's paid service, even if they qualified to use Free File. the city's lawsuit alleges.
H&R Block denied wrongdoing but agreed to the settlement “to avoid the time, expense and uncertainty of litigation,” the stipulated judgment states.
Who does the agreement cover?
The settlement applies to Californians who paid H&R Block to prepare and file their returns online from May 6, 2015 to October 31, 2020, despite being qualified for free help under the US Free File program. IRS.
There's a caveat, though: The deal applies only to people who signed up for H&R Block's free basic service and were directed to its paid product. Anyone who has used the Free File version of H&R Block in a previous year is not entitled to any payment.
Free File is available only to people whose adjusted gross income (that is, income less certain deductions, including retirement savings contributions and student loan interest payments) is below the limit set by the IRS, which increases annually with inflation. For 2020, the limit was $72,000.
According to the California attorney general's office, 70% of U.S. residents who file tax returns were eligible to use Free File for their 2020 taxes, but less than 3% did so.
How much will the agreement pay?
The amount is not specified in the agreement. Instead, it will depend on how many of the eligible recipients respond to the settlement offer and how many times they used H&R Block's paid service. The more people who respond, the smaller the amount will be.
According to the city attorney's office, there are 76,212 Californians eligible to receive restitution. If everyone responds to the offer, they will receive at least $18.89 per use of H&R Block's paid service.
What do you have to do to get a payment?
Simply reply to an email. Under the agreement, H&R Block is supposed to identify which of its customers are eligible for a payment. The company will then deliver the clients' names and addresses (mail and email) to the settlement administrator, who will send them an email asking how they would like to receive their share of the fund.
Here's another caveat: you won't be able to collect your payment in cash or by check. Instead, you'll have to receive the money electronically through a service like Venmo, PayPal, or Zelle.
When will payments be made?
Under the agreement, which was signed Friday, H&R Block has three weeks to name a trustee, whose costs will be covered by the company, not the settlement fund. The administrator will then have 44 days to send an email to people eligible for payment.
Once the servicer receives your response, you will have 30 days to make your payment. So if you respond quickly to the administrator's email, you should receive it in mid-April.
What alternatives are there to file your tax return for free?
Both H&R Block and Intuit stopped participating in the IRS Free File program. But both continue to offer free versions of their paid software to people with simple returns.
Eight online tax preparation companies participate in Free File, providing free help to taxpayers whose adjusted gross income was $79,000 or less in 2023.
This year, the IRS offers its own free in-house tax preparation and filing service called Direct File for simple filers, competing with free services from Intuit and H&R Block. However, it launched Monday by invitation only and won't be widely available until later in the tax filing season.
The AARP Foundation's Tax-Aide program and the IRS-sponsored Volunteer Income Tax Assistance program can connect you with a volunteer tax preparer who will file your tax return for you or help you do it yourself, at no cost. some for you. These services provide tax preparation or guidance only to low- and moderate-income taxpayers who meet income limits, or who have disabilities or limited English proficiency.
Several Free File participants also offer free help preparing and filing California tax returns. And the state's Franchise Tax Board offers qualified taxpayers the ability to file their returns for free online through a service called CalFile.
