Tax Software Uses Surge Pricing, Takes Advantage Of Later Filers

Image courtesy of Mike Mozart

One of the many innovations that ride-hailing service Uber has given the world is that it popularized the phrase “surge pricing,” which means raising the price for something as demand for it goes up. Lots of industries do this, but filing taxes is something that everyone has to do.

Reader Dave, for example, received this e-mail from TurboTax urging him to file already.

turbotaxmarch17

“TurboTax has noticed that I have started filing my taxes using their service and is raising their prices now,” Dave observed. Well, not quite: they would have raised their prices whether he started working on his return or not.

You might have seen ads for TurboTax’s “absolute zero” pricing, but most taxpayers aren’t eligible for that program. Only people who would normally file 1040A or 1040EZ forms would pay $0, and those are workers who have a payroll job and don’t own a business, have a mortgage, or have any dependents.

Last year, Intuit ended “absolute zero” filing in February, and this year they end it in March, probably on the 17th when the price hike happens.

Those taxpayers happen to be young adults, who are exactly the people that a preparer or software provider wants to attract and keep as a loyal customer in their tax-paying ecosystem. As their lives become more complicated, so will their taxes, and more complicated taxes mean that they may pay more for preparation, whether it’s different program or a paid preparer.

Bloomberg reported earlier this month that all tax preparation programs do this, hiking prices for filing services or desktop software by as much as 30% in the last month before taxes are due. TurboTax, for example, charges nothing for simple forms filed early in the season, raising the price to $30 by April 15.

Free filing is available until the deadline through the Free File Alliance as long as your income is under $62,000, but state income taxes are not necessarily free to e-file.

Another way around the price jump is to buy the desktop software version of the most popular tax software: if you buy or download them early on, it doesn’t matter when you file.

Surge Pricing on Your Tax Return: Preparers Squeeze Procrastinators [Bloomberg]
TurboTax Is Killing It This Filing Season [Bloomberg]