Welcome back to the Tax Season in Data, where we take a look at the 2021 tax season filing pace for 1040, 1065, 1120-C, and 1120-S returns compared to the same period last year.
A lot has happened in the two weeks since our last update. The single most significant legislative update is undoubtedly the American Rescue Plan Act of 2021, which we discuss in detail here. While many provisions may affect your clients, the most noticeable immediate impact as of 03/15 is the provision declaring the first $10,200 of unemployment income received in 2020 nontaxable. We do see some impact on the filing pace for 1040 returns (see Individual returns below).
There isn’t a period-over-period change in the filing pace gap between the 2020 and 2021 tax filing seasons, with a couple of notable exceptions. The Treasury and IRS announced a one-month filing and payment extension for 1040 returns on 03/17 – after this update’s cut-off, I expect to see the ramifications of the extended filing and payment deadline reflect on our 04/01 update.
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 benchmarked against 2020 tax filing season to provide the tax community insights into the pace of the 2021 tax season.
Partnership Returns (1065)
The graph above shows the current pace of partnership (1065) tax returns, as compared to the prior tax season on the same day last year.
To date, partnership returns have maintained the same pace that we saw with the 03/01 data, with all four observation points staying within approximately 1% of the 03/01 data. This lack of movement may seem alarming when viewed out of context. However, we saw a significant jump in completed returns in last year’s data from 03/15/2020 to 04/01/2020, when completion rates went from 9.4% to 33.6%.
I believe that the 04/01 update will provide further insight into how many partnership returns took advantage of the September 15 extension, either due to continued COVID-19 communication difficulties or because of the rapidly changing tax filing landscape last week.
Individual Tax Returns (1040)
The graph above shows the current pace of individual (1040) tax returns, as compared to the prior tax season on the same day last year.
Much as with partnership returns, individual returns are maintaining the same pace that we saw with the 03/01 data, with the notable exception that the return not started gap has nearly doubled, from 1.7% on 03/01 to 3.0% on 03/15.
The good news is that customers using XCMworkflow are still significantly ahead of the nation at large when it comes to the filing pace for completed returns. XCMworkflow customers have no year over year filing gap for completed returns, whereas IRS filing season statistics as of 03/12 (the latest report as of this publish date) shows the total individual income tax returns received in 2021 are 13.3% below the number of returns received in 2020 (66.1M in 2021 versus 76.2M in 2020).
This data is from 03/15 – before the IRS and Treasury announced the 2021 filing and payment deadline extension to May 17 for 1040 filings. As such, any potential filing pause from the announcement is not reflected.
In the 2020 tax filing season, we saw a sudden jump in the filing numbers at the 04/01 update. I am interested to see if the same jump occurs in the 2021 04/01 update, especially considering many filers are waiting on state updates and tax software to be updated with the new dates.
Corporate Returns (1120-C)
The graph above shows the current pace of corporate (1120-C) tax returns, as compared to the prior tax season on the same day last year.
As with individual and partnership returns, 1120-C filings are maintaining the same pace that we saw with the 03/01 data. The 03/15 filing pace gap for all four observation points has stayed within 0.5% of the 03/01 data. Also, as with partnership (and individual) returns, in the 2020 tax filing season, we saw a sudden jump in the filing numbers at the 04/01 update. Hopefully, we see the same jump in the 2021 04/01 update.
Corporate Returns (1120-S)
The graph above shows the current pace of corporate (1120-S) tax returns compared to the prior tax season on the same day last year.
1120-S filings are also maintaining a similar pace to the 03/01 data, with a 0.7% average filing pace gap for all four observation points between the 03/01 and 03/15 data. Also, as with partnership (and individual) returns, in the 2020 tax filing season, we saw a sudden jump in the filing numbers at the 04/01 update. Hopefully, we see the same jump in the 2021 04/01 update.
Tax Season Tip: Communicate Proactively to Maximize Efficiency (and reduce time on the phone)
With the recent changes and media coverage regarding the various Act provisions and filing changes, clients want to know how the changes will affect them, especially if the unemployment compensation taxability provision affects them. And because of the number of changes and the level of uncertainty around the tax season, you and your staff are fielding client inquiries while during peak busy season compression. Rather than wait for your clients to come to you with questions, why not save yourself some time and instead reach out proactively?
Whether you know it or not, your firm management, tax preparation, and workflow solutions have the information you need to understand how the American Rescue Plan Act will affect a potential client. By reviewing client information and splitting them into categories based on how the recent changes affect them, you can communicate with each client more effectively.
Yes, I know that manually reviewing each client organizer and return isn’t possible during peak season. But you don’t need to– with predictive intelligence tools like CCH Axcess iQ the data you already have can identify which clients need a quick email reviewing the recent changes and which clients may need a phone call to go over the Act’s effects in more detail.
Learn more about how iQ can help your firm handle conversations and questions around the American Rescue Plan Act
This update was a lot of “same as last period,” but based on the previous year’s data, we know that the 04/01 period tends to set the curve for the rest of the season. Hopefully, on 04/08, when we report on the 04/01 data, we will see a significant jump in completed returns.
In the meantime, don’t forget to take advantage of our free tax-season resources!
Check back to these pages regularly for insights and free resources to help you make the 2021 tax filing season successful.