PayPal is extending its services by offering free federal and state tax filing for users with PayPal debit cards. This initiative aims to enhance user engagement on the platform and facilitates direct deposit of refunds into user accounts.

Leveraging PayPal’s Services

The service partners with April, a provider of white-label tax filing tools, using an AI-driven tax engine that can extract financial data directly from connected apps. However, users will need to share this data with PayPal.

Unlike platforms like TurboTax or H&R Block, which offer professional assistance, PayPal’s service is self-guided and guides users through the process of entering information, uploading documents, and electronically filing taxes with the IRS. For additional support, an AI chatbot is available at an extra cost.

Enhancing Utility and Deposits

Beyond tax-related services, PayPal enables payments for taxes using various flexible options. Refunds are accessible through PayPal Direct Deposit. Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, notes that this move serves two primary purposes: depositing refunds into PayPal accounts and providing multiple payment methods.

Privacy and Regulatory Considerations

Prior to these changes, PayPal is pursuing a bank charter. Approval would allow the company to offer interest-bearing savings accounts for tax filers, potentially addressing privacy concerns by limiting how customer data can be used in marketing efforts.

Apgar explains that, should this happen, PayPal might obtain non-personally identifiable demographic data from April but will not have access to personally identifiable information (PII).