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Tax & AccountingAugust 31, 2021

2021 Tax Season in Data: 08/15/2021

Welcome back to the sixth installment of the 2021 Tax Season in Data. Hopefully, you took my advice in the May 17 update and took a well-earned break.

The theme of this update seems to be slow but steady progress that has failed to keep up with the prior two year's filing pace. Despite this failure to match or exceed the prior year's filing paces, two of the three segments showed double-digit decreases in returns not started and similar growth in completed returns. The 1040 segment is the only one that experienced a less than 10% change.

However, I don’t necessarily see slow but steady growth that failed to keep up with prior years’ tax season filing pace as a negative. The data from this most recent update tells me that many firms applied lessons that they learned during the height of the extended filing season last year to the 2021 tax fling season. So let’s dive into the data!

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, 2020, and 2021 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 saw a 4.8% decrease in not started returns and a 9.4% increase in completed returns since our last update (period ending 05/17).

The 1040 segment saw an uneven rate of progress over the past three months. After an 8.6% decrease in returns not started for the period ending 05/17, much smaller period-over-period decreases were seen for the periods ending June 15 (2.3%), July 15 (1.1%), and August 15 (1.4%). We saw similar results for completed returns, with increases of 4.6%, 2.4%, and 2.4% for June, July, and August, respectively.

On our last update (for the period ending 05/17), the 1040 segment national average filing pace for 2021 outperformed the 2020 filing pace for all metrics (not started, in process, completed, and not filing). That trend continues through the period ending June 15. However, the July 15 data saw the 2021 filing pace 1.9% behind the 2020 filing pace, and August 15 has the 2021 filing pace 4.2% behind the 2020 filing pace for returns not started. The filing pace for completed returns is in a similar position, with the 2021 tax filing season pace for 1040 returns dropping from 11.4% ahead of the 2020 filing pace as of June 15 to 5.6% behind the 2020 filing pace as of August 15.

The 2020 tax filing season jump for 1040 returns is no doubt in large part due to the 2020 filing date being July 15. In addition, in 2021, many tax preparers had planned their vacations before the (partial) federal filing due date extension. Anecdotal information was that many preparers did not reschedule after the federal due date for individual returns was pushed to 05/17.

In 2020 we saw the percentage of returns not started sitting in the low teens until the October 15 extended deadline (when returns not started dropped to 6.8%). Based on the last three months, I expect to see the same thing again for the 2021 tax filing season. 

Partnership Returns (1065)

The 1065 segment national average filing pace for 2021 saw a 12.6% decrease in not started returns and a 13.6% increase in completed returns since our last update (period ending 05/17).

As with the 1040 segment, 1065 returns saw somewhat uneven progress. After only a 2.9% decrease in returns not started for the period ending 05/17, there were significantly larger period-over-period decreases for the periods ending June 15 (4.0%), July 15 (3.6%), and August 15 (5.0%). We saw similar results for completed returns, with the percentage of returns completed jumping by 4.1% as of June 15, 3.9% as of July 15, and 5.6% as of August 15.

The percentage of returns not started and completed returns for the 2020 and 2021 tax filing seasons were very close in May and June. However, in July, the 2021 filing season began to fall behind, with 1065 returns not started 3.7% behind the 2020 filing season and completed returns for the 2021 tax filing season 5.6% behind the 2020 tax filing season. Our September update will provide additional perspective - at this point, it's too early to project if the 2021 filing pace will catch back up to the 2020 filing pace, let alone to the 2019 filing pace.

Corporate Returns (1120-C)

The 1120-C segment national average filing pace for 2021 saw a 15.1% decrease in not started returns and an 11.7% increase in completed returns since our last update (period ending 05/17). These changes are significantly more than both the individual and partnership segments. The 1120-C segment saw perhaps the most consistent rate of progress over the past three months, though as with the partnership segment, there was a dip for the period of June 16 – July 15.

After a small change of 2.4% for the period ending May 17, corporate returns saw a 5.4% decrease in returns not started as of June 15, a period-over-period decrease of 4.3% as of July 15, and a 5.4% period-over-period decrease in returns not started for the period ending August 15. We saw similar results for completed returns, with increases of 3.7%, 3.4%, and 4.6% for June, July, and August, respectively.

As with 1040 returns, on our last update (period ending 05/17), the 1120-C segment national average filing pace for 2021 outperformed the 2020 filing pace for all metrics (not started, in process, completed, and not filing). That trend continues through the period ending June 15. However, July 15 data saw the 2021 filing pace for returns not started 2.7% behind the 2020 filing pace, and August 15 has the 2021 filing pace 4.9% behind the 2020 filing pace.

Also notable is that July 15 was the first time since the period ending April 01 that the 2021 filing pace dropped below the 2020 filing pace. By August 15, the gap between the 2020 and 2021 filing pace had grown to 6.6%. Given that the federal extended deadline for 1120-C filings is October 15, I expect to see this gap slowly close between now and then.

Concluding Thoughts

As extension season heats up and we approach year-end, one factor that I am keeping a close eye on is outsourcing. We are seeing a significant uptick in outsourced individual and entity returns this extension season. It’s quite possible that firms who previously hadn’t considered outsourced as part of their tax season strategy – or are being impacted by the Great Resignation – are leaning on a combination of domestic and international outsourcing through a service like Xpitax Tax Outsourcing to create additional capacity and be successful in another unusual – and uncertain – extension season. 

It’s also quite possible that firms have applied the lessons they learned from the 2020 tax filing season to last year to the 2021 tax filing season. Many firms quickly discovered that their office-based workflows and processes didn’t work in a remote or hybrid environment, one that many firms are still working in today.

Firms that identified problems in their existing technology solutions, implemented applied new and emerging technologies to resolve their challenges and took advantage of data-driven insights from series like this one had better opportunities to pace themselves appropriately. In combination with adequate staffing – or judicious utilization of outsourcing to increase capacity – these firms may not be as concerned about falling behind as they might have been in a prior period, due to adequate planning and capacity through year-end.

It will be quite interesting to see how the data presents itself over the next two months. I look forward to testing my hypotheses and providing you with the 2021 year-end wrap-up in early November. In the meantime, 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.