Did you pay H&R Block for tax help? You may be getting a refund

As Californians do their taxes for 2023, an estimated 70% could qualify for free help online to prepare and file 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 of them for misleading the public about the free offerings. On Monday, the Los Angeles city attorney’s office announced that H&R Block had agreed to settle the city’s lawsuit and repay customers as much as $1.6 million.

The announcement follows the $141-million settlement that 51 state attorneys general struck with Intuit in 2022. TurboTax customers were reimbursed last year; now it’s H&R Block customers’ turn.

“With tax filing season starting today, this settlement is a reminder that millions of taxpayers are eligible to file their federal tax returns free of charge,” City Atty. Hydee Feldstein Soto said in a statement. “I am pleased to be able to return $1.6 million to people who shouldn’t have paid for a free service.”

H&R Block’s chief legal officer, Dara Redler, said in a statement that the tax preparing company was also “pleased to be able to resolve this matter.”

Here’s what you need to know about the H&R Block settlement, who’ll be eligible for a payments, when the 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 free, entry-level 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 every year by the IRS, regardless of how they earned their money, while H&R Block’s entry-level service is mainly for wage earners with very simple returns. People who tried to use H&R Block’s free service with more complicated returns — for example, those with income from gig work 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 alleged.

H&R Block denied any wrongdoing, but agreed to the settlement “to avoid the time, expense, and uncertainty of litigation,” the stipulated judgment states.

Who is covered by the settlement?

The settlement applies to Californians who paid H&R Block to prepare and file their returns online from May 6, 2015, to Oct. 31, 2020, despite being qualified for free help under the IRS Free File program.

There’s a caveat, though — the settlement applies just to people who signed up for H&R Block’s free entry-level service and were steered to its paid product. Anyone who used H&R Block’s version of Free File in a previous year is not entitled to a payment.

Free File is available to only people whose adjusted gross income — that is, income minus certain deductions, including retirement savings contributions and student loan interest payments — is under the cap set by the IRS, which rises annually with inflation. For 2020, the limit was $72,000.

According to the California attorney general’s office, 70% of the U.S. residents who file tax returns were eligible to use Free File for their 2020 taxes, but less than 3% did.

How much will the settlement pay?

The amount isn’t specified in the settlement. 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 for restitution. If they all respond 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 obtain a payment?

Just reply to an email. Under the settlement, H&R Block is supposed to identify which of its customers are eligible for a payment. The company will then turn over the customers’ 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 such as Venmo, PayPal or Zelle.

When will the payments be made?

Under the settlement, which was signed Friday, H&R Block has three weeks to name an administrator, whose costs will be covered by the company, not the settlement fund. The administrator will then have 44 days to email the people who are eligible for payment.

Once the administrator receives your reply, it will have 30 days to make your payment. So if you respond quickly to the administrator’s email, you should get it by mid-April.

What alternatives are there for filing 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 is offering its own free, in-house tax preparation and filing service called Direct File for people with simple returns, competing with the free services from Intuit and H&R Block. It was launched Monday on an invitation-only basis, though, and won’t be widely available until later in the tax-filing season.

The AARP Foundation Tax-Aide and the IRS-sponsored Volunteer Income Tax Assistance program can connect you to a volunteer tax preparer who will file your tax return for you or help you do it yourself, at no charge to you. These services provide tax preparation or guidance only to low- and moderate-income taxpayers who meet the income limits, or who have disabilities or limited English proficiency.

Several of the participants in Free File also offer free help preparing and filing California returns. And the state Franchise Tax Board offers qualified taxpayers the ability to file their returns for free online through a service called CalFile.

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