Is Paying to File Your Taxes a Scam?

April 15 is tax day, which means the dumbest tax you’ll likely pay this week is the one you pay to a software company in order to file your taxes. Over the past several decades, tax preparation software companies have built a multibillion-dollar industry that’s so ubiquitous, most people have forgotten to be mad about it.

As a comedian who specializes in scam identification, I would argue that paying for the privilege of paying taxes is bonkers and, yep, a scam. 

First, you shouldn’t have to file your taxes at all. And second, you certainly shouldn’t have to pay a private company to complete legally mandated paperwork. 

Anyone who makes $84,000 or less—roughly 70% of taxpayers—is eligible to use the IRS’ Free File tool. However, in 2023 just 3% did so. Instead, hundreds of millions of Americans pay what is, essentially, a weird private sector tax. But unlike regular taxes, this money doesn’t fund roads or the Coast Guard, it goes to private companies who have historically used that money to make sure the system never gets better. It’s like if there were a toll gate in front of every DMV owned by a massively profitable tech company that pumps that profit into lobbying against the removal of unnecessary DMV gates.

You shouldn’t need a private company to fill out paperwork for you, but you also shouldn’t have to fill out paperwork at all. The government has most of the same information you have. Think about it: the government garnishes Social Security taxes from every one of your paychecks and employers are required to submit lots of tax information to the government about you. This means it if you are a full-time W-2 employee who takes a standard deduction, it would be pretty easy for them to tell you how much you generally owe or don’t owe—instead of making you spend time and money to tell them something they already know in this weird, high-stakes game of Family Feud. “We asked your boss how much money you made, top 10 answers are on the board. If you guess wrong, you get punished.”

Many countries like Denmark, Japan, Sweden, Spain, and the United Kingdom have return-free filing. And countries like Germany send citizens prefilled tax forms. Why not us? Why can’t we have nice things?

It’s not because it’s too hard. A 2022 study published in the National Bureau of Economic Research found that Americans spend over 1.7 billion hours and $33 billion preparing individual tax returns each year and determined that the U.S. could send prefilled taxes to nearly half of taxpayers with the information they already have.  

And it’s not because we just never thought of it. Return-free filing was included in President Ronald Reagan’s bipartisan Tax Reform Act of 1986. That’s right, nearly 40 years ago people were already working on this idea that still seems wildly futuristic.

We dreamed big again with the bipartisan IRS Restructuring and Reform Act of 1998, which required the IRS to develop a system for taxpayers to file return-free no later than 2008. OK, that’s a 22-year delay, but it’s better than nothing. Unfortunately 2008 came and went and we’re still filing taxes the old-fashioned way. One potential reason? Toll collectors really love collecting tolls.

For decades, TurboTax’s parent company Intuit has poured gobs of money (perhaps money they collected from their “toll gate”) to influence U.S. tax policy. When asked about its lobbying efforts, an Intuit representative said, “Intuit strongly believes in advocating on behalf of its customers. We engage with policymakers on various issues, from AI and innovation that benefits individuals and businesses to stronger consumer protections and tax simplification. ”

A leaked internal presentation acquired by ProPublica demonstrates plainly how the company has bragged about stopping attempts for the government to make paying taxes easier or freer. The presentation also details plans to make the idea of paying to file your taxes seem like a grassroots idea that we were clamoring for. And it worked.

The stalwartly frugal among you might be among the small percentage of Americans who file for free. I’m proud of you, I really am. But the fact that the toll collectors allow some people to pass their gate for free is part of the scam. In 2002, Intuit and others entered an absurd pact with the government saying that they would allow some people to file for free and in exchange the government wouldn’t offer return-free filing. That would be infuriating enough if they fully kept their end of the bargain. But instead, Intuit built a system in which many people who wanted TurboTax Free File (which was free) were directed to sign up for TurboTax Free Edition (which for most people wasn’t). For this, they settled with the FTC in 2022 for $141 million. To put that number into context, Intuit expects to bring in over $18 billion in revenue this year alone.

In 2024, Intuit appealed the FTC’s decision, calling it “deeply flawed” and the Intuit representative maintains that “Intuit has always been clear, fair, and transparent with its customers and is committed to free tax preparation.” 

To be sure, the FTC has also taken action against H&R Block, accusing the company of steering eligible filers away from free options to file their taxes towards paid plans.

Finally, in 2023 the IRS started developing their own easy and free filing system using money from the Biden-era Inflation Reduction Act. This effort is not as ambitious as I’d like, it’s 40 years late, it’s currently being tested in only 25 states, and the name “IRS Direct File” doesn’t sell how cool it is—but it works and people like it. If you can believe it, the Tax Policy Center reports that 90% of people who use the direct file feature have a positive experience paying their taxes. And they especially seem to enjoy the fact that it does not randomly switch you to something called IRS Direct “Edition” that costs money. 

In 2025, an estimated 30 million taxpayers across 25 states can use Direct File. So of course it might be going away. In February, Elon Musk fired all of the people who built the software that worked well, people liked, and saved them money. Cool.

If you were extremely, undeservedly generous and gave Musk the benefit of the doubt, you might think, “Well, maybe those programmers were costing the government too much money.” Alas, nope. In its first 12-state pilot, the system cost $10.5 million to develop and $2.4 million a year to run—but it saved taxpayers $5.6 million in filing costs. At that rate, it’d pay for itself in just a couple years.

Rest assured, it gets worse. In 2022, Intuit took a $94 million tax credit for “research.” They spent $94 million of your money to figure out how to charge you money to do a thing the government already knows how to do for free and got a tax break of roughly nine times as much as it cost the government to do the same thing. And then, in the name of efficiency, the people who saved the government and taxpayers a ton of money were fired.