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Early Filing Taxpayers Lead Charge

  |  April 15, 2003   |  Comments

More than half of the 80 million returns already received by the IRS were filed electronically, marking a season of heavy tax site traffic and prep software sales.

Last-minute filers are taxing the Web, rushing to gather information and complete forms before the midnight, April 15 deadline. As of April 4, the Internal Revenue Service reportedly received more than 80 million returns – with expectations of roughly 38 million more around deadline time – and another 14 million throughout the remainder of the year.

2003 Filing Season Statistics
Cumulative through the
week ending 4/5/02 and 4/4/03
Category 2002 2003 Change
Individual Income Tax Returns
Total Receipts 79,735,000 80,191,000 0.6 %
Total Processed 72,304,000 73,670,000 1.9 %
E-filing Receipts:
TOTAL 39,158,000 43,330,000 10.7 %
TeleFile (phone) 3,616,000 3,425,000 - 5.3 %
Computer 35,542,000 39,905,000 12.3 %
Tax Professionals 28,351,000 30,762,000 8.5 %
Self-prepared 7,191,000 9,143,000 27.1 %
Source: Internal Revenue Service

The IRS reported that 27.1 million taxpayers – more than 20 percent – waited until the 2002 deadline to submit their income tax return. "There is no need to be in line at the Post Office at midnight on April 15," said Terry Lutes, director, IRS Electronic Tax Administration. "Our best advice: e-file now; pay later. You can electronically file your returns and schedule a payment by April 15. However, it's important that you start now to prepare, gather your documents and necessary forms."

Nielsen//NetRatings reports that more than 22 million Internet users visited an online tax services site in February 2003 – an increase of 15 percent over 2003 – outpacing the 11 percent growth rate of the general finance, insurance, and investments category.

"In comparison to the overall finance, insurance and investment category, the online tax services segment continues to post above average unique audience growth," said Patrick Thomas, senior Internet analyst, Nielsen//NetRatings.

Traffic to Online Tax Services,
(U.S., Home and Work)
February 2003
Category February 2002 February 2003 Growth
Online Tax Services Sector 19,449,000 22,324,000 15%
IRS.gov 8,090,000 10,104,000 25%
TurboTax* 5,695,000 6,819,000 20%
HRBlock.com 3,241,000 2,958,000 -9%
TaxAct.com 1,171,000 2,049,000 75%
TaxCut.com 1,425,000 1,755,000 23%
Source: Nielsen//NetRatings

Note: Report is based on multiple levels of custom data created from top-line numbers and demographic information.
* Data for TurboTax comprised of the total unduplicated traffic to turbotax.com, taxfreedom.com, and turbotax.intuit.com

"Much of the growth is being generated by taxpayers without extensive online tenure who are turning to the Web for the first time to file their taxes," added Thomas.

Analysis from The NPD Group revealed a trend among early filers, with record-breaking sales in tax software sales during the early part of the season. "January retail sales of tax software were the largest ever recorded and February's sales were the largest ever recorded for that month," aid Steve Koenig, senior software analyst for The NPD Group.

NPD found that 6.2 million units of tax software sold through retail from December 2002 to February 2003 – compared with 5.8 million units during the same period the year prior – translating to $204 million in revenue, compared with $180 million.

"Computer based software and Internet tax preparation services have changed the way Americans prepare their taxes," said Nielsen//NetRatings' Thomas. "It's become an easy and affordable option for many surfers within the middle income brackets who most often put a premium on ease of completion and know the Internet can also help them get their refund quickly."

NPD's research indicates that Intuit dominates the market with its Turbo Tax and Turbo Tax Deluxe titles, commanding 69 percent of the market in terms of unit sales and 76 percent of revenues generated from retail tax software sales. Leading the charge is Turbo Tax 2002 Deluxe, which alone carries 34 percent of unit sales and 35 percent of revenue this season.

Findings from Jupiter Research (a unit of this site's corporate parent) substantiate the online tax prep growth, with 8.7 percent of consumers reporting that they have or will use such a service in 2003 – an increase of 31 percent from 2002.

Jupiter found that much of the online usage seems to come from early-filers – 19 percent of online households reportedly filed through a Web-based tax prep site in January, compared to just 4 percent in April. However, the usage disparities could be due to users passing along software CDs to friends, and the large number of "unconvertible" taxpayers who won't leave their accountants.

The IRS attributes early filing to those taxpayers who are due refunds, finding that most taxpayers who wait until the last minute generally owe taxes to the government, and also have returns that tend to be more complex. Approximately 73 percent of refund returns are received before April 1.

Two-thirds of all American taxpayers are expecting to receive tax refunds this year, according to the Cambridge Consumer Credit Index, and 59 percent said they plan to spend them on everyday purchases or to pay bills. More than one-quarter (27 percent) plan to save their refunds in a bank account, while only 4 percent will invest the money in stocks, bonds or mutual funds.

Comparatively, in April 2002, 69 percent received refunds and 62 percent spent the money on everyday bills, 23 percent saved it and 5 percent invested in stocks and bonds.

"The results of Cambridge Consumer Credit Index's April wildcard question indicate the economy should get a boost as most taxpayers spend their tax refunds. However, consumers are still cautious, as shown by the four percentage point increase in the number of Americans putting their refunds into savings accounts this year compared to 2002," says Jordan Goodman, spokesperson for the Index.

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