You probably know Credit Karma as one of the country’s most popular places to check your credit score for free. Perhaps you’re among its millions of members. It also now offers a totally free income tax prep platform that caters to frugal, self-confident filers with situations ranging from the simple to the very complex.
No matter how convoluted your finances, you can file taxes for free with Credit Karma Tax.
Credit Karma Tax shares much in common with fellow DIY online tax prep programs like FreeTaxUSA and TaxAct. But its prep and filing process has enough idiosyncrasies to warrant a detailed review – and, due to some limitations that we’ll explore in detail below, a pre-filing check to ensure that you meet its suitability criteria.
Here’s what you need to know about Credit Karma Tax’s prep and e-file process, major features, limitations, advantages, and drawbacks.
You’ll need to understand these features to do your own taxes with Credit Karma Tax and get the most out of the platform.
Credit Karma Tax’s prep interface is built around your individualized Tax Packet: the complete set of tax forms you need to complete your return.
To build your Tax Packet, Credit Karma Tax uses your answers to a series of basic questions about your life and finances. If you’ve prepared your taxes online in the past, you’re familiar with the gist of these questions – they cover your marital status, homeownership status, employment, investments, charitable contributions, healthcare, miscellaneous sources of income, and more.
Once you’ve answered all these questions, you’re transported to your Tax Packet dashboard. It lists in sequential order all the steps you’ll need to complete before you can file your return.
Each section is broken into smaller subsections: “I owned a home” subdivided into “mortgage interest paid,” “real estate taxes paid,” and more. Only the most common subsections are shown, but you can click the “Show less common items” dropdown at the bottom of each section to display the full retinue.
Credit Karma Tax assumes you’ll take the standard deduction, but the software tracks your deduction entries and prompts you to switch to itemizing if and when your cumulative itemized deductions exceed the standard deduction.
You can work on any subsection you choose, in any order, so long as you complete it before exiting. Otherwise, you may lose data. There’s no need to manually save your progress when you step away from your account, as long as you’ve completed your most recent subsection.
When you’re done filling out all of your subsections, you can move straight on to your state tax return. The same basic process applies here: You fill out the sections and subsections that apply to your return, with Credit Karma automatically populating redundant fields to save time.
Before you file, the system reviews your entries and flags for errors and inefficiencies. Correct those at your leisure, send in your return, and you’re good to go.
If you didn’t prepare last year’s return with one of those programs, you’ll need to manually enter all your personal information to get started.
Credit Karma Tax has a photographic W-2 importing system. Simply snap a clear picture of your W-2, upload it through your account dashboard, and review the transcribed information field-by-field to confirm its accuracy.
This is a great tool for taxpayers prepping their returns on smartphones or tablets with built-in cameras.
Like most online tax software, Credit Karma Tax has a real-time refund display that shows you exactly how much you can expect to get back from state and federal authorities – or, conversely, how much you owe. The amount changes with each new bit of relevant information.
Free State Returns
Credit Karma Tax doesn’t charge for state tax filing – a major advantage over competitors, the vast majority of which charge for state returns in all but the most straightforward of tax situations. You’re entitled to one free state tax return per year.
If you lived in or earned income in multiple states during the tax year, you need to look for another tax prep program.
DIY Tax Help Center
Credit Karma Tax’s Tax Help Center is a one-stop shop for technical assistance and basic tax prep help. It’s essentially a searchable, user-friendly knowledge base and FAQ trove with short articles and paragraph-length answers to just about every common tax question imaginable.
In my limited experience, the search function is substantially better than some competitors’ help sections, so there’s less slogging through rows of questions to find the answers you seek.
Like many tax preparation programs, Credit Karma Tax has 24/7 human support available by live chat. To initiate a help session, you need to fill out a support ticket in the Tax Help Center. Support staffers are qualified to handle technical questions related to your account and platform experience, plus basic questions about your tax return itself.
Credit Karma Tax doesn’t employ credentialed tax experts, such as CPAs, so you’ll need to bring really complex questions elsewhere. Also, expect to wait in line for some time during peak periods. On a recent visit, a weekday afternoon early in tax season, Credit Karma was already warning of unusually high chat volumes.
Maximum Refund Guarantee
Like most online tax filing services, Credit Karma Tax has a maximum refund guarantee. If an identical return filed with another tax prep provider produces a larger IRS refund, you’ll receive up to $100 from Credit Karma.
This offer only applies to filers entitled to federal tax refunds, not those who owe taxes to the IRS. The gift card’s value remains the same regardless of the size of the discrepancy or refund.
Accurate Calculations Guarantee
Credit Karma Tax also has an accuracy guarantee, termed an “Accurate Calculations Guarantee.” If you’re penalized by the IRS or your state tax collection agency due to a Credit Karma Tax calculation error, the platform promises to reimburse you up to $1,000.
As a relatively new online tax prep platform, Credit Karma Tax isn’t as expansive or well-developed as more established competitors, such as TurboTax and Liberty Tax Online. It’s not appropriate for filers to whom any of these situations apply.
The most common include:
- Married couples filing separately in community property states (Washington State, Idaho, Nevada, California, Arizona, New Mexico, Texas, Louisiana, or Wisconsin)
- Filers who need to file more than one state return
- Filers who need to report foreign earned income
- State returns not accompanied by a federal return
Fortunately, Credit Karma Tax is appropriate for small-business owners, self-employed filers, investors, and others with complex tax preparation needs.
Here’s what Credit Karma Tax has going for it.
1. Always Free for All Users
Credit Karma Tax is always free for all users. Anyone who can file a return with Credit Karma Tax does so at no out-of-pocket cost. While the platform’s software limitations exclude certain types of filers, such as married couples filing separately in community property states, the vast majority of U.S. taxpayers qualify.
That’s a big deal in an online tax prep world that’s inexorably moving toward paid service for all but the simplest situations.
2. Free State Returns
Unlike most competitors, Credit Karma Tax doesn’t charge for state returns. Your state return is included in your federal return’s “price” – in other words, it’s totally free.
3. Can Handle Tax Situations of Virtually Any Complexity Level
Credit Karma Tax is appropriate for virtually any tax situation. The software supports all common IRS and state forms, even those pertaining to less common situations, such as farming, rental property income, and the like.
I’ve outlined some important exceptions to this general rule in the Disadvantages section below, but the takeaway is this: Unlike most competitors, Credit Karma Tax is free for the vast majority of U.S. taxpayers.
4. Prefilled Forms for Existing Credit Karma Users
If you already have a Credit Karma account, you can breeze through the demographic information portion of your return, thanks to the platform’s handy information import.
Since it’s fast and free to create a Credit Karma account, there’s no real reason not to take this step ahead of time. Just be sure to check that your transferred information is correct before moving on.
5. 24/7 Customer Support
Credit Karma Tax has round-the-clock customer support. This is great news for busy filers who need to carve out time later in the evening or on weekends, lest tax season passes them by.
Most low-cost competitors limit live support to extended weekday business hours.
6. User-Friendly Prep Interface
Credit Karma Tax has a user-friendly prep interface that looks great on smartphones and tablets. The super-clean design guides your eyes exactly where they need to go.
I didn’t get stuck or confused once, which is a pretty impressive feat for me personally. (The platform does have some minor navigation issues, though, as outlined below.)
Overall, I’m hard-pressed to recall a more pleasant first-time tax prep experience.
Consider these drawbacks before using Credit Karma Tax.
1. Limit One State Return Per Filing
Credit Karma Tax only supports one state return per filing at present. This is obviously a problem for filers who moved across state lines or earned reportable income in multiple states during the tax year.
Credit Karma says it’s working on a fix for this limitation, but there’s no timetable for its rollout.
2. No Expert-Level Support Available
Credit Karma Tax doesn’t offer access to credentialed tax experts, such as CPAs. Full-service online competitors, such as TurboTax, do offer CPA and EA (IRS Enrolled Agent) support.
Competitors with physical branch locations, such as H&R Block and Jackson Hewitt Online, also offer expert-level support at no extra cost. If you’re not confident in your ability to navigate a complex return without leaning on an expert, you may want to go with one of those alternatives.
3. Limited Importing Capabilities for Prior-Year Returns
Credit Karma Tax has limited prior-year return importing capabilities. You can only transfer your prior-year information if you previously filed with Credit Karma Tax, H&R Block, TaxAct, or TurboTax.
Some competing programs allow prior-year return importing from any platform, so long as the return is converted to PDF or another acceptable format.
4. Married Filing Separately Not Available Everywhere
Married couples opting to file state taxes separately can only do so in non-community property states. As of 2020, there are six community property states that levy state income taxes: Idaho, California, Arizona, New Mexico, Louisiana, and Wisconsin.
If you’re married and live in any of these jurisdictions, you can’t use Credit Karma Tax to file state taxes unless you plan to file jointly with your spouse – which, to be fair, is the default option for most couples.
5. No Support for Foreign Earned Income
You can’t report income earned from foreign sources with Credit Karma Tax.
While it’s not particularly common for U.S. persons to earn income that technically qualifies as “foreign,” it’s certainly not unheard-of. I know at least two families who rent out second homes in Canada, for instance.
6. Internal Navigation Issues
Credit Karma Tax has some minor internal navigation issues that adversely impacted my prep experience. The most noticeable was the disconnect between the Help Center and the prep interface.
From the support ticket page, I couldn’t navigate directly back to my return. Instead, I had to click the Credit Karma Tax logo at the top of the page. That took me back to the Credit Karma Tax homepage, rather than my account dashboard.
To access my account dashboard, I then had to click the “Get my refund” button to re-enter the system – an unnecessary step that, fortunately, didn’t result in any information loss. (Credit Karma Tax wisely saves each time you complete and exit a form or section.)
This is a relatively easy issue for Credit Karma to fix – I’m no developer or UX expert, but I feel like adding a basic top or side navigation bar to the Help Center would do the trick. But it underscores Credit Karma Tax’s greenness. Prospective users, set your expectations accordingly.
At first blush, Credit Karma Tax seems like it really is for everyone. Its single, simple tax prep plan includes all common IRS forms, meaning it’s applicable to tax situations of virtually any complexity.
That alone is big news, as most competing online tax prep providers limit their free federal filing packages to filers with simple to moderately complex situations.
Though it’s not ideal for novice filers due to limited expert-level support, Credit Karma is one of the few programs that allows tax-savvy small-business owners to file at no out-of-pocket cost.
The reality is a bit less sweeping. Due to software limitations, Credit Karma Tax is unsuitable for small but important segments of the U.S. taxpaying population: filers with income in multiple states, filers with foreign income, and married couples filing separately in a community property state.
If you fall into any of those categories, you’ll need to look elsewhere for your tax prep needs. Otherwise, Credit Karma Tax is definitely worth a close look.