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Tax & AccountingMay 31, 2021

2021 Tax Season in Data: 05/17/2021

Congratulations, tax preparers, you made it! The 2021 tax filing season – also known as the tax season that never ends part 2 – is over! And what a season it was. From a delayed start, winter storms, and another spike in COVID-19 cases to vaccinations and the slow return to some form of normalcy for parts of the country, it’s been a roller coaster of a tax filing season and those ups and downs have been reflected in the data.

However, as we look at the national average filing pace over the past three years as of 05/17, we see that every segment reported on (1040, 1065, 1120-C, and 1120-S) have surpassed the 2020 filing pace, though none have quite matched the 2019 national average filing pace, even when controlling for the non-extended filing date. We’ll discuss that more in the spotlight below.

Our Data Source

Before we start, I want to share what data drives the Tax Season in Data. These reports are the results of millions of unique tasks processed through the XCMworkflow system annually. We leverage the resulting data points to obtain insight into the pace of filing seasons. Our customers, who receive these types of analytics during the tax filing season, have told us that one of the more significant benefits they receive from the data is when they compare their firm against the pace of the national average or similar-sized firms.

Utilizing XCManalytics as a Service, I have compiled this years' data for 1040, 1065, 1120-C and 1120-s returns and benchmarked the data against 2019 and 2020 tax filing season to provide the tax community insights into the pace of the 2021 tax filing season.

Because this data is not static, some period-over-period shifts occur as work is entered and dates of action are backdated. Therefore, we assume a 1% - 2% error margin.

Individual Returns (1040)

The 1040 segment national average filing pace for 2021 has outperformed the 2020 filing pace in a year-over-year comparison once again. As of 05/17, the 2021 filing pace for returns not started, returns in-process and returns completed are 11.8%, 1.4%, and 11.4% above their respective 2020 filing pace. This can officially be called a trend now that we see the same year-over-year out-performance over data points (for the periods ending 04/15, 05/01 and 05/17).

There is still a 2.9% - 5.9% gap between the 2021 and 2019 national average filing paces, with the 2021 national average filing pace lagging behind the 2019 pace. Multiple factors are influencing this, including the 2021 filing season starting 12 days after the 2019 season, the continuing effects of COVID-19 and the early spring / late winter storms that affected parts of the country.

One metric I have been watching is the percentage of returns under “NC/not filing” – we know from the IRS data that there’s a decline of the tax-prep DIYer compared to 2020, so the fact that not filing has jumped back to the 2019 levels, after a 1% drop in 2020, is interesting. However, the 1.1% change is still within the margin of error, and I wouldn’t be surprised if we see changes to this percentage in our June or August updates.

Partnership Returns (1065)

The 2021 filing pace for the partnership segment continues to creep up on the 2019 pace, with the 2021 / 2019 national average tax filing season pace gap for returns not started decreasing from 4.6% for the period ending 04/15 to 3.1% at the current update (for the period ending 05/17). We see a decrease of 2.7% (on average) in returns not started and a 3.9% (on average) increase in returns completed every 15 days, starting with the period ending 04/15. If these averages stay consistent, we won’t see the filing pace gap for the 2021 and 2020 shrink to within the margin of error until the period ending June 30th for completed returns, and potentially not until extensions are due on September 15th for returns not started. For context, last year, the 2020 and 2019 filing paces fell within the margin of error for returns not started at the 06/30/2020 update.

As with individual returns, I have been watching the NC/Not Filing numbers with particular interest, especially after last year when we saw the rise of DIY filers. While only a 0.4% difference, it’s still refreshing to see that number drop back to pre-COVID levels.

Corporate Returns (1120-C)

In what seems to be an across the board theme for this update, we once again see that the 2021 filing pace for corporate (1120-C) returns has outperformed the 2020 filing season pace (by 3.5% for returns not started and 2.9% for completed returns), but has fallen short of overtaking the 2019 filing pace (by 4.5% for returns not started, and 4.3% for completed returns).

Unlike the 1040 segment – which has steadily increased the 2020 / 2021 filing pace gap – and the 1065 segment – which has effectively been at a 0% gap since the April 15 update – for 1120-C returns, we see a slow drop in the 2020 / 2021 filing pace gap. This is undoubtedly due at least in part to the slow but steady work done in 2020 as preparers approached the July 15th deadline. Meanwhile, the average filing pace gap between the 2019 and 2021 filing periods has stayed at 4.3% for the third straight reporting period.

Looking to past years in an attempt to gain insights for the current year, in 2019 we saw a significant jump in filing pace at the June 15 update, when the percentage of returns not yet started dropped by more than half. Hopefully the June 30 data will show similar gains for the 2021 tax filing season.

Year-over-Year Filing Deadline Comparison

In an attempt to control for the extended filing season, I compared the filing pace for 1040, 1065, and 1120-C segments as of the 2019, 2020 and 2021 filing deadlines – April 15th, 2019, July 15th, 2020 and May 17th, 2021.

It should come as no shock that the 2020 tax filing season outstrips the 2019 and 2020 tax filing seasons – after all, the 2020 season had a 60+ day advantage over the 2021 and 2019 seasons. What was surprising, though, is how small the gap was, and when looking at the data for later months, how quickly that gap disappeared. Take the percentage of completed returns, for example. For the 1040 segment, 61.6% of returns were complete at of July 15th, 2020 – only 7.6% more than the percentage of returns completed as of April 15th, 2019. For the 2019 tax filing season to match the 2020 pace by 07/15, we would need to see right about 4.5% growth every month for the next three months. We know from the data (see the 07/15/2020 update) that by July 15th, completed returns for the 1040 segment sat at 63% - above the July 15th, 2020 percentage of returns completed.

The other key piece of information that stands out to me when looking at the data in this manner is the gap between the 2019 and 2021 filing paces – namely, that there isn’t much of one. Looking across segments and filing statuses, we see 3.4% - 0.5% differences between the two years. This is especially significant when we consider that the 2021 season started 12 days late and that for most of the 2021 season, much of the accounting industry worked somewhere other than in the office – and yet the most significant gap between the 2019 and 2021 tax seasons is the 1040 segment, with returns not started sitting at 3.4%. 

Concluding Thoughts

The filing deadline over filing deadline analysis above, combined with the period-over-period analysis I’ve performed over the past three months, clarifies and reinforces how significant late-season compression can be, with roughly 50% of returns being processed in one month (for the 1040 segment). These high compression periods are exacerbated by significant upheaval in the accounting industry over the last three years between the Tax Cuts and Jobs Act, the effects of COVID-19 and two years of extended filing deadlines, and coronavirus relief tax legislation, leaving little time for firms to reflect and implement process improvement.

Take time now to reflect on how your firm responded to events over the last three years, and how your people, processes, and technology worked together to support changing circumstances and shifting deadlines. Celebrate how your people adjusted to support clients and maintain productivity, and ask how your staff adapted existing processes and technology to support themselves in a different working environment.

This is also the time to ask what progress looks like for your firm. As you consider the answer, ask yourself these questions:

  • How has your staffing model supported the firm over the past two years? Where has it fallen short? If you firm is having difficulties finding and retaining quality staff, consider reviewing your outsourcing strategy.
  • How did your technology vendors and partners support you? What efforts are they making to implement automation and other emerging technologies into their solutions? In particular, if your collaboration and workflow tools they fell short, this is the time to consider moving to a solutions that better supports your firm needs.
  • What processes are no longer working, and how can they be improved upon? This is a perfect question to ask your staff – what changes would they make to improve productivity?

This past year has been a journey in operating in an industry that relies on technology as much as it does people as much as it does process. Consider the year over year comparisons and how you outperformed or underperformed against the national averages What will your next move be?

I look forward to updating you on 09/02 with the tax filing pace as of 08/15. Until then, stay safe, healthy, and productive.

Mark McAndrew
Author at Tax & Accounting

As the Director of Project Management for Firm Management (FM) at Wolters Kluwer, Mark focuses on the vision and strategy of all FM products and delivering customer and shareholder outcomes within the FM solutions set. Mark has extensive experience within both the Fortune 1000 and large public accounting firm spaces. He is a frequent speaker on business process management and workflow advisory consulting, tax and accounting outsourcing, and productivity enablement software deployments.