Amazon aims for piece of tax refund action through TurboTax

Richard Mullins for TBO.com writes:  Mom always said, don’t count your chickens before they hatch. But Amazon and TurboTax are hoping you might divert some of your tax refund their way before it even arrives.

This year’s version of the TurboTax software has a new feature installed at the final step of the tax preparation process. If the software calculates that you have a tax refund coming your way, it will automatically ask if you want to use part or all of the return to buy an Amazon Gift card. The motivation: An extra 5 to 10 percent on every dollar you divert, depending on the version of TurboTax people use. The Federal Free edition can generate an extra 5 percent, while the TurboTax Deluxe version offers an extra 10 percent. So a hypothetical $500 diversion can turn into a $550 Amazon Gift card. This is an exclusive arrangement, according to Amazon’s PR firm, Weber Shandwick. Officials with Intuit, which produce TurboTax, could not be reached for comment.

This means, at the moment users feel like they’re about to get a load of extra money from a tax return, Amazon is right there to help spend it. That page of the software helpfully includes suggestions of what people can buy on Amazon, with photos of sparkling jewelry, a tablet, books, “even groceries!”

Amazon and TurboTax started this match-up for the first time this year, and it offers each company a perk. For Amazon, it guarantees a flow of future purchases in the Amazon system, and potentially generates more profit as consumers often forget to use all the value on their gift cards. For TurboTax, it can attract more users for the online tax software by offering essentially free money to anyone who receives a refund.

Both companies see a huge pool of potential customers. TurboTax processes millions of tax returns each year. That also targets a specific pool of the U.S. taxpaying group — people who set aside more for taxes than they could have. That’s because the personal tax system lets people essentially have more money pulled from their paychecks than necessary to pay that week’s federal taxes. Then when taxpayers calculate their full-year tax return, that extra money becomes a “refund” back to them. Many personal finance experts advise against doing this, as it counts as an interest-free loan to the government, and that money could have been bearing interest in an account until tax time.

In past years, the TurboTax software offered two basic choices: Have the IRS mail a check to the taxpayer or have it direct deposited in their checking account. (An extra option lets people pay the fee for the TurboTax system out of their tax return.)

TurboTax rival H&R Block has a somewhat similar offer, an Emerald Card that’s a fee-based debit card where customers can have their refunds deposited for future use, and even for paying their H&R Block tax preparation fees.

“I guess it’s just another example of companies trying to monitize their customer lists,” said Carla Smith, a CPA and partner with the Sarasota financial planning and accounting firm Plush Smith. She found the Amazon project with TurboTax, “a savvy one,” but “egads, I think it’s gone overboard.” Too often, she said, people perceive a big tax refund as a windfall, when in fact, “it’s your money to begin with,” she said, because it was taken out with each paycheck in withholdings, and the refund process merely gives you back the difference.

Unfortunately, the TurboTax/Amazon system doesn’t work in reverse. People who end up having to write a check to the Internal Revenue Service don’t get anything extra from Amazon.