Tax E-Filing Households Segment Summary April 2015
Source: 2014–15 MacroMonitor
No one would argue that the US tax code is not complicated. For example, in 2013, the code included more than 73,000 pages of tax deductions, exemptions, credits, exclusions, and discharges. An increasing number of households choose to file their taxes electronically via the internet. In 2013, three-quarters of households that filed electronically used a computer, 3% used a tablet, and 1.4% used a smartphone. Almost half (45%) of e-filers prepared their own taxes using a computer program; one-quarter used an online website (such as the IRS's Free File, eTax, Tax Cut, TurboTax, and H&R Block). Many of these sites offer free federal-tax filing, hoping to charge for state and local filing. Although 41% of all households paid a professional to prepare their return, only 11% of e-filers did so.
Households that file taxes electronically are an interesting mix of early adopters, fairly sophisticated money managers, and young household heads accustomed to using technology to do just about everything. Of e-filer household heads:
- Roughly half (53%) are younger than age 50; almost half (47%) are age 50 and older.
- They are more likely than all household heads to hold a four-year college degree or higher (41% versus 32%).
- They are average for having children younger than age 18 (36%) and adult children who have returned home (10%) but are less likely than average to have dependent adults (7%).
- Three-quarters are currently employed; 18% are retired; 29% are not retired and not preparing to retire.
In comparison with all US households, e-filers are less likely than average to have annual incomes of less than $50K and somewhat more likely than average to have incomes between $50K and $125K and $125K or higher. The majority (45%) are middle-income households—households that earn between $50K and $125K. Characteristically, these households have assets but not overly complicated tax situations.
- They are more likely than all households to own savings accounts, US Savings Bonds, education saving accounts, stock or bond mutual funds, and 401(k), 403(b), or 457 plans.
- They have higher-than-average mean amounts in stock or bond mutual funds, closed-end funds, unit investment trusts, and other securities.
- They are more likely than all households to have a vehicle loan, consumer loan, education loan, and outstanding credit-card balance but owe average amounts on these forms of debt.
- They have higher-than-average mean values in asset or management accounts and full-service stockbrokerage accounts.
- They are more likely than average to have vehicle, group life, and group health insurance.
- They have higher-than-average mean balances of total financial assets, total investable assets, and total liquid assets.
- They are somewhat less likely than average to be struggling financially, to need assistance, or to have more than they need; one-half are financially stable right now.
Financial Attitudes and Interesting Tidbits
In general, e-filers are responsible and able money managers. They do not overly focus on financial matters because they have savings and investment plans in place funded by regular contributions. For most e-filers, debt levels are in control. However, three in five households would pay off some debt if they were to receive a windfall of $25K. What makes e-filers distinctive is their willingness to forgo interactions with, and reliance on, personal relationships—relationships with humans. For example, fewer than one-quarter (mostly) agree they prefer to do most of their financial business in person.
- E-filers are less likely than average to agree that it's important that the financial people they deal with know them by name or to value chatting with people they know at financial institutions; only 8% agree that they prefer locally owned financial institutions.
- Four in five e-filers use the internet to connect to a financial institution; two in five use an app to access a financial account or institution.
- E-filers are more receptive than are all households to credit unions and consumer-finance firms than to traditional banks and full-service brokers.
- Although 65% of e-filers select a bank versus 27% who select a credit union as their primary financial institution, when asked which they would prefer as their primary institution, only 54% choose a bank, and 34% select a credit union.
- Fewer than 10% used a professional for tax planning in past two years; 78% are somewhat or very unlikely to obtain tax-planning advice in the next 12 months.
- About one-third received advice from a professional in the past two years: 8% from a bank officer or investment advisor, 6% from a certified financial planner, and 5% from a full-service stockbroker.
- Somewhat fewer than one-half of e-filers itemized deductions on their 2013 tax return; only 13% reported income or expenses for any business or rental property.
- Only 4% of e-filers applied for, or obtained, a refund-anticipation loan.
E-filers are full-time citizens of the digital economy, reflecting shifts to anonymous services and nonlocal providers. Electronic sophistication does translate to receptivity to slightly more risk and comfort with automatic deductions for saving and investing. A lesson may exist for the future as more people become comfortable using the internet for financial services: Any electronic service that simplifies managing financial chores will likely find growing adoption. In addition, the importance of convenience over personal relationships will prevail; it is unclear if this prevalence will translate into "stickier" relationships. Opportunities exist for financial institutions with strong, creative, IT departments that stay ahead of the curve and develop new, easier, and more convenient electronic services for e-filers' financial needs.
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