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TaxAct is the subject of a nationwide class action lawsuit alleging that the online tax preparation company shared users’ highly sensitive tax and financial information with third-party advertising and analytics platforms without clear or informed consent. The complaint claims that tracking technologies embedded within TaxAct’s online filing system transmitted user data in real time, capturing information as individuals actively prepared and submitted their tax returns, rather than after the filing process was complete. The claims focus on tax filings completed between 2018 and 2022, a period during which millions of consumers relied on the platform to handle confidential personal and financial details.

The lawsuit alleges that this data sharing occurred even though users were assured their personal and financial information would remain private and secure. Instead of moving forward with a trial, the parties agreed to a proposed settlement worth nearly $15 million, resolving the claims without any admission of wrongdoing by the company. If the settlement is granted final court approval, eligible users who submit a valid claim before the deadline may receive a modest cash payment from the settlement fund. The exact amount each claimant receives will depend on how many claims are approved, along with deductions for attorneys’ fees, settlement administration, and other related costs.

The lawsuit alleges that TaxAct embedded tracking and analytics tools within its online tax preparation platform that transmitted users’ private tax-related information to third-party advertising and analytics companies. According to the complaint, this data sharing occurred in real time, while users were actively preparing and submitting their tax returns, prompting concerns that highly sensitive information was disclosed during a process users reasonably expected to remain private and confidential.

Plaintiffs claim that the transmitted data included users’ names and contact information, filing status, income ranges, indicators related to employment and investments, and details about dependents and household composition. They argue that this information extended far beyond routine website analytics and instead involved sensitive personal and financial details that are protected under applicable privacy laws. The lawsuit contends that this conduct violated California’s strict privacy statutes, which prohibit the interception or disclosure of electronic communications without a user’s informed consent. TaxAct has denied the allegations, maintaining that it complied with applicable laws and did not improperly use or misuse customer data. Nonetheless, both sides agreed to resolve the dispute through a proposed class action settlement, choosing to avoid the expense, length, and uncertainty associated with prolonged litigation and a potential trial.

The lawsuit was filed by a TaxAct user who prepared and submitted his tax returns through the platform and later learned that his personal and financial information may have been shared with third-party companies without his knowledge or consent. Filing the case in early 2023, the plaintiff sought to represent himself and other similarly affected users, alleging violations of privacy laws governing the handling and disclosure of sensitive tax data. After the case was filed, it was transferred to federal court in California, where the court applied California state privacy law to determine whether the alleged data-sharing practices were lawful.

As the litigation progressed, both sides weighed the risks, costs, and uncertainty of continuing toward trial. Rather than engage in prolonged court proceedings, the plaintiff and TaxAct entered settlement negotiations to explore a resolution. These discussions ultimately resulted in a proposed class action settlement, allowing the parties to resolve the dispute while avoiding additional legal expenses, lengthy litigation timelines, and the uncertainty of a trial verdict.

This case was filed as a class action lawsuit, a legal process that allows one plaintiff to bring claims on behalf of a larger group of users who were allegedly affected in the same manner. Rather than requiring each individual to file a separate lawsuit, the class action structure consolidates similar claims into a single case, providing an efficient way to address widespread privacy and consumer protection issues.

You may qualify for compensation under the settlement if you used TaxAct’s online federal tax filing service during the covered period and meet the eligibility criteria. The settlement applies to individuals who filed federal tax returns through the platform between January 1, 2018, and December 31, 2022, and who had a U.S. postal address at the time of filing. This eligibility group also includes joint filers, spouses listed on joint tax returns, and military members who filed using APO or FPO addresses, which are recognized as U.S. postal codes.

While many eligible users received notice of the settlement by email or postcard, others may not have been contacted due to outdated or incomplete contact information. Not receiving a notice does not necessarily mean you are excluded, and users who meet the eligibility requirements may still submit a claim and participate in the settlement even without a direct notification.

The settlement sets aside approximately $14.95 million to compensate eligible class members. Before any payments are distributed, the court must approve deductions for attorneys’ fees, litigation costs, and settlement administration expenses. The remaining funds will then be distributed among claimants whose submissions are approved.

Current estimates indicate that most eligible users may receive around $18 to $20, though individual payments may differ. Some claimants, including California residents and those who filed joint tax returns, may be eligible for slightly higher amounts. The final payout each person receives will depend on how many valid claims are submitted before the deadline and how the settlement fund is distributed after all required deductions.

There are several important deadlines associated with the TaxAct settlement, and missing them could affect your rights. Eligible users must submit a claim or request to opt out of the settlement by September 11, 2024. Those who wish to retain the right to pursue their own lawsuit must opt out by this same deadline. The court has scheduled a final approval hearing for November 21, 2024, although this date may change due to court scheduling or unresolved matters.

Payments will only be issued after the settlement receives final court approval and the claims process is fully completed. As a result, approved claimants should expect a delay between submitting a claim and receiving payment.

Submitting a claim typically takes only a few minutes to complete. Proof of purchase or tax records are not required; however, claimants must certify under penalty of perjury that they meet the eligibility requirements outlined in the settlement. This certification is a legal declaration, and submitting false information may carry consequences. If you previously received notice of the settlement and your contact information has not changed, you may not need to take any additional action and could be included automatically in the settlement distribution.

What Happens If You Do Nothing?

If you take no action in response to the settlement, you may still receive a payment if you were automatically included as a class member based on TaxAct’s records. However, choosing not to file a claim or opt out also has legal consequences. By remaining in the class, you will be bound by the settlement terms and waive the right to file a separate lawsuit against TaxAct over the same data-sharing allegations addressed in this case.

While individual payments under the TaxAct settlement may be modest, the lawsuit draws attention to broader concerns about digital privacy in online tax preparation services. Because tax filing platforms handle highly sensitive financial and personal information, the case underscores the importance of transparency, clear disclosures, and meaningful user consent when such data is collected or shared.

For affected users, filing a claim is a low-effort step that may lead to modest compensation. More broadly, participating in the settlement reinforces accountability and signals that companies providing tax services are expected to properly protect users’ personal and financial information.

Disclaimer: This article provides general information, not legal advice. If you have any questions about this, please don’t hesitate to contact us.