What to Know Before Using Free Tax-Return Services
February 10 2017 - 5:59AM
Dow Jones News
By Laura Saunders
Credit Karma has attracted 60 million users over the past decade
by offering free credit information. Now the financial technology
upstart is hoping to attract millions more via free tax-return
preparation.
U.S. taxpayers this year can use a new Credit Karma unit to
complete their returns online for no cost -- even if they don't
give the company permission to use their data for other purposes.
The company says the service can handle more than eight dozen
federal forms and be used to prepare most state returns as
well.
Credit Karma, which is based in San Francisco, is the latest
entrant in a field of tax-preparation services that already
includes Intuit Inc.'s TurboTax, H&R Block and Blucora Inc.'s
TaxAct.
It is hoping to attract users in the fastest-growing category of
tax filers: people who prepare their own returns using the internet
instead of desktop software or a paid preparer.
The industry giant is Intuit's TurboTax Online, which had more
than 28 million users last year, or nearly five times the number of
users a decade ago. Online tax-prep provided 89% of Intuit's $1.97
billion operating revenue from consumer tax products for its most
recent fiscal year.
Online tax-prep products offered by Block and TaxAct had about
five million users each last year.
Meanwhile, sales of once-popular desktop software have declined.
Last year TurboTax sold about 5 million desktop units, compared
with nearly 7 million a decade ago.
Credit Karma declined to say how many people have already used
its new offering, called Credit Karma Tax, although it says 1.7
million people joined a waiting list to try the service after its
initial announcement in early December. To enter the tax-prep
field, the company bought a tax-software firm for an undisclosed
sum.
Credit Karma says its tax service doesn't charge online
customers any fees at all. Currently some customers of other firms
pay a fee while others don't, but users attracted by free offers
can wind up paying fees if they opt for add-on services or
upgrades.
Both Intuit and H&R Block said that can happen, but their
products provide more benefits. "A large percentage of TurboTax
Online customers pay nothing," said a spokeswoman for Intuit. "And
we never share customer data with a third party without the
customer's consent."
A spokesman for Block said, "H&R Block gives support for
complex issues that many taxpayers need, whether one is filing on a
desktop, tablet or smartphone."
There are other ways Credit Karma's approach differs from that
of rivals. It seeks to collect income and other data from its
tax-prep users to make recommendations for credit cards and other
financial products to them.
Credit Karma doesn't charge for these solicitations and says it
doesn't share personal information or sell it to third parties.
Instead, the third-party firms pay Credit Karma if the member
applies for and receives a product through its site.
To use Credit Karma Tax this year, people will need first to
become members of Credit Karma. That means providing certain
information, including address, date of birth, mobile phone number
and the last 4 digits of a Social Security Number.
Prospective users should also be aware that the program can't
yet import data -- so it must be entered manually.
Recent Credit Karma filers Mike Zaccardi and Rosylen Mangohig
say they didn't realize they could deny the company the use of
their return data and still file their taxes using it. A company
spokeswoman says this information is clearly stated on the
site.
Ms. Mangohig, who is 41 years old and works as an administrator
at a medical clinic in Oakland, Calif., says she was pleased with
how Credit Karma Tax functioned and found that it gave her the same
tax totals as an H&R Block tax program.
But she wasn't pleased when she soon received a notice from her
credit-card company asking her to update her income. "I don't want
financial companies to know my income and try to sell me products
based on it," she said. She deactivated her Credit Karma
account.
The spokeswoman for Credit Karma says the request Ms. Mangohig
received had nothing to do with her Credit Karma membership.
Mr. Zaccardi, a 29-year-old energy trader in Jacksonville, Fla.,
says he is happy to have Credit Karma have his tax information:
"I'm careful with my credit, and I'm happy with their products. I
want to get those offers."
He adds that he recently completed his aunt's "fairly simple"
tax return using Credit Karma Tax. Last year tax prep cost her
$64.99, he says, but "this year it was very smooth, and free."
Write to Laura Saunders at laura.saunders@wsj.com
(END) Dow Jones Newswires
February 10, 2017 05:44 ET (10:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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