Tax reform had little impact on tax prep market share, says Moody’s

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The 2017 tax law had no discernible impact on consumer tax filing patterns or the market share of tax prep vendors, according to a new report from Moody’s Investors Service.

Moody’s found that approximately 56 percent of electronic filings were handled by paid providers, down just slightly from 57 percent in 2018, but it noted that’s in line with the continued secular shift toward do-it-yourself online filing services and software

Meanwhile, the respective market share of the two leading tax-preparation companies, Intuit and H&R Block, remained remarkably stable during the 2019 tax season. While TurboTax held a 30 percent share of electronic filings, a slight uptick from 29 percent in 2018, H&R Block's total share of electronic filings remained relatively flat at 16 percent. Block's store-based assisted returns business had a 9.2 percent share of electronic filings, which was down slightly from 9.5 percent last year, while the company's DIY offerings accounted for 6.8 percent of filings, up slightly from 6.5 percent in 2018. The decline in Block's assisted-returns business was smaller than Moody’s had anticipated, given the closing of underperforming store locations and the lack of a free file option offered in stores last year. This year, Block promised greater pricing transparency and, in many cases, lower prices for assisted filers. “But retaining market share does not yet indicate whether these changes will benefit Block's earnings,” said Moody’s. “The company does not report its financial results for the tax season until June.”

Moody’s looked at statistics from those two companies, as well as the Internal Revenue Service. It noted that according to the IRS, the number of tax returns filed through April 19 was virtually flat from the same period last year. Electronically filed returns accounted for 92 percent of total returns, and rose 1.4 percent, thanks to the continuing decline in paper filings.

Moody’s contends that true tax simplification would accelerate the shift of consumers away from assisted tax providers to DIY options.

“We believe that true tax simplification would accelerate the secular shift of consumers away from assisted tax providers to DIY options,” said the research report. “But despite the new tax law's increase of the standard deduction, which suggested a move toward tax simplification, the market shift to DIY software and services moved at about the same pace during the 2019 tax filing season as it did in 2018 before the new rules took effect. The vast majority of taxpayers file their taxes the same way they did in the prior tax year.”

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Tax season Tax prep software Tax reform Intuit H&R Block IRS Moody's