How Do Free Tax Services Make Money

ELI5: How do free tax-preparation websites make money?

I have used one for years, and I don't understand how they make money letting me file for free. There are no ads on the site I use. I do pay for state filing, but not much. Is the state filings their sole source of revenue?

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level 1

Usually they offer paid services for more complicated filings.

Letting you or I file a simple 1040 costs them almost nothing, and while we do that they can advertise their other services to us. In the future, if we decide to start a business or do some investing, we'll be more likely to use their services to file our more complicated taxes, and we'll pay them for it.

level 2

To add to this, since your information is already saved with your preferred tax site when you do need those additional services it is easier for you to continue using that site instead of a different site.

Additionally the main reason that sites offer free Federal tax filing is because the IRS first offered free online filing. For someone reason though, people don't trust the IRS to help them file their taxes.

level 2

Ah, that makes sense. Thanks!

level 1

Another way is by allowing federal tax filings (certain, very basic kinds) to be free, but charging for filings for state income taxes. That way, they know you're likely to pay $20 (or whatever) to not have to enter all your information somewhere else again (for the state taxes).