Credit Karma’s free online tax-filing service will remain independent from TurboTax’s developer Intuit.
Citing antitrust concerns, the US Justice Department has been scrutinizing Intuit’s plan to acquire Credit Karma for $7.1 billion. And so on Friday, the department announced it would permit the merger after Intuit agreed to divest Credit Karma’s tax business.
“Without this divestiture, the proposed transaction would substantially lessen competition for digital do-it-yourself (DDIY) tax preparation products,” the Justice Department said in today’s announcement.
The new owner of Credit Karma’s tax-filing business will be Square, the mobile payments provider, which is paying $50 million to take over the asset. In a statement, the company said it would offer the free tax-filing service through the Square Cash app.
“With this acquisition, we believe Cash App will be able to ease customers’ burden of preparing taxes every year,” said Square’s Cash App Lead Brian Grassadonia.
This past year, Credit Karma’s free tax-filing service helped more than 2 million users process their returns—which is far lower than TurboTax’s 41 million user base. Nevertheless, it’s been popular enough that the Justice Department called the service a “disruptive competitor” in the online tax-filing market.
“This always-free business model has enabled Credit Karma Tax to compete aggressively for filers who pay for TurboTax, which helps constrain TurboTax prices and push Intuit to improve TurboTax offerings,” the Justice Department said. “The combination of Intuit and Credit Karma would eliminate this competition, likely resulting in higher prices, lower quality, and less choice for consumers of DDIY tax preparation products.”
However, Intuit has said it wants to buy Credit Karma to leverage the company’s technology assets to help it build AI-powered financial assistants, which can then advise internet users. Credit Karma, which is perhaps best known for offering free credit scores, has a total user base at over 110 million.
“This brings us one step closer to transforming personal finance by making it simpler for consumers to find the right financial products, put more money in their pockets, and provide financial expertise and advice,” Intuit CEO Sasan Goodarzi said in a Friday statement.
The divestment of Credit Karma’s tax business to Square is expected to close before the year ends.
