What You Need to Know About Credit Karma Tax
File your return at no cost with this mobile-friendly online service
It’s not your grandfather’s Internal Revenue Service anymore. Gone are the days of pencils and paper tax forms, and scribbling math equations on a notepad. Numerous companies stand by with software and apps that are designed to make tax time as painless as possible. Credit Karma Tax is one of them.
How to Use Credit Karma Tax
Using Credit Karma Tax is as easy as accessing the website, but you do have to sign up with Credit Karma first to prepare and file your return. It’s similar to setting up an account with any internet provider you might use. But you get a lot of extras from Credit Karma when you sign up, including credit monitoring, access to your credit scores, and two out of the three credit reports available from the major credit-reporting agencies—all for free.
This isn’t a limited-time offer for a 30-day trial. The whole tax program is free. Period.
“Credit Karma Tax built a mobile-first tax-filing experience,” Christina Taylor, head of Operations at Credit Karma Tax, told The Balance. “Credit Karma members can file their taxes from start to finish directly from their smartphones—no matter how complex their tax situation.”
You’ll be asked to verify your identity via text or phone, and you’ll have to set yourself up with two-factor authentication to access your information on subsequent visits. It might sound like a pain, but these security steps are important in preventing others from accessing your private information.
The program can access certain information from your previous year’s return if you use it again in subsequent years, and you can e-file your return when you’re done.
You can e-file your return, or you have the option of printing out a copy and snail-mailing it to the IRS. Credit Karma Tax will keep it safe for you when you’re done—it will still be accessible by you on the site after filing.
Pros and Cons of Credit Karma Tax
Support from Credit Karma professionals.
Authorized IRS E-file Provider.
Errors are your responsibility to correct.
Can’t file state return without also filing federal return.
One nice feature for tax novices is that they can reach out to Credit Karma Tax via email or its chat system for explanations regarding tax provisions and technical help with the site, right from the app or program. They can’t expect to get actual tax advice, however—only a bona fide tax professional can give you that.
Credit Karma Tax is an authorized IRS E-file Provider with dedicated on-site data security personnel in place. Your data is encrypted as you send it over to the site.
The tax program also offers a 100% guarantee that your return is correct—up to a point. Credit Karma Tax isn't accountable for information you entered that’s not correct, but it will reimburse you if it makes a calculation error that results in penalties or interest being charged to you by the IRS.
“If the IRS and/or applicable state tax authority imposes penalties and/or interest on a member due to a Credit Karma Tax calculation error, we’ll reimburse them for penalties and interest up to $1,000 in the form of gift cards,” Taylor said.
And while you can file a state return with your federal return, you can’t file one without filing a federal return, too.
Who Should Use Credit Karma Tax?
Credit Karma Tax has all the bases covered for the average taxpayer. It supports 95% of Americans’ tax filing scenarios, according to Taylor, the program's head of operations.
“[In 2018], more than 1.5 million Americans filed their taxes with Credit Karma Tax, ranking us within the top five DIY tax-filing companies in the U.S. Of those who filed with Credit Karma Tax, more than half were millennials,” Taylor said.
But Credit Karma Tax might not be ideal for taxpayers with particularly complex filing requirements, even though it does support all commonly used tax forms.
You’re also not left out in the cold if you have a small business or operate as a sole proprietor. Credit Karma Tax accommodates filing Schedule C for self-employed business expenses and Schedule SE for the self-employment tax, as well as Schedule E for partnerships, multi-member LLCs, and estates and trusts.
You can’t file more than one state return, and you can’t file a part-year state return or a nonresident state return, either. Credit Karma Tax isn’t set up to accommodate foreign earned income, Schedule K-1 for estates and trusts, nonresident alien returns, or state filings in community property states when spouses opt to file separate returns.
Filing separate returns when you live in a community property state involves divvying up income and deductions that technically belong equally to both spouses under the law. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Seek the help of a tax professional if you live in one of these states but don’t want to file a joint return with your spouse.
At one point, Credit Karma Tax was unable to accommodate claiming the Earned Income Tax Credit (EITC) for taxpayers without qualifying dependents, but that’s changed.
You can qualify for the EITC without a dependent if you’re 25 to 64 years old, filing as single, head of household, or qualifying widow(er) and if your income is less than $15,820 for the 2020 tax year, the return you'll file in 2021. This limit increases to $21,710 if you’re married and filing a joint return. You must also have lived in the U.S. for at least half the year, and you can’t be the qualifying child of another taxpayer.
The American Rescue Plan Act of 2021 significantly enhances this tax credit for childless individuals and spouses. Taxpayers as young as age 19 are eligible in 2021 unless they're a student enrolled less than half-time, and there's no cap on the age requirement for this year, either. The Act increases the maximum credit for these taxpayers from $543 to about $1,500, but again for just one year only.
Alternatives to Consider
Credit Karma Tax certainly isn’t your only option. Numerous software providers offer tax programs, although not necessarily for free.
Credit Karma Tax can import information from older returns if you previously used the H&R Block, TaxAct, or TurboTax programs and want to make a switch this year. Its tax program is not part of the IRS Free File Alliance, however, which can be a cost-free alternative for some taxpayers who earn less than $72,000 in 2020, reported in the return to be filed in 2021.
“The FFA only allows membership to companies that offer free services ‘to not less than 10% and not more than 50% of the individual taxpayer population,’” Taylor said. “Credit Karma offers 100% free services to 100% of its members, and thus is unable to join.”
Consider all of your options before tax season to ensure that your return is filed on time and for a price that fits your budget.