Study: Taxpayers Flock Online in Record Numbers

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More than 22 million Internet users visited an online tax services Web site in February, an increase of 15 percent from the year-ago period, according to a study by Nielsen//NetRatings.


The performance by the tax services sites beat the 11 percent growth rate of the general finance, insurance and investments category, the market researcher said. More than 17 percent of the U.S. population at work and home visit tax services sites for filing taxes, information and downloading forms.


"We're going to see more people using the online application," said Patrick Thomas, senior Internet analyst at Nielsen//NetRatings. "I don't think that's necessarily going to cannibalize the software-based application. I just think we're seeing a general growth in the online sector."


The Internal Revenue Service's site at IRS.gov was the top performer. It attracted 10.1 million unique visitors from home and work in February, up 25 percent from the year-ago period. TurboTax was next, with 6.8 million unique visitors, a 20 percent rise.


In addition, leading offline tax preparer H&R Block's hrblock.com got 3 million visitors. TaxAct.com, a lower-priced alternative to the big services, attracted 2 million unique visitors. Block's TaxCut.com rounded out the top-five sites, drawing 1.7 million unique visitors.


Examining by income the percentage of households nationwide that visited a given site in February showed that middle-income individuals were most drawn to the online services.


For those earning up to $24,999 a year, IRS.gov, TurboTax.com, hrblock.com, TaxCut.com and TaxAct.com accounted for 6.53 percent, 5.65 percent, 7.28 percent, 3.06 percent and 8.17 percent, respectively.


Of those in the $25,000 to $49,999 income bracket, IRS.gov, TurboTax.com, hrblock.com, TaxCut.com and TaxAct.com accounted for 31.04 percent, 26.15 percent, 36.55 percent, 29.73 percent and 36.67 percent, respectively.


For taxpayers in the $50,000 to $74,999 income category, IRS.gov, TurboTax.com, hrblock.com, TaxCut.com and TaxAct.com accounted for 29.64 percent, 32.34 percent, 31.18 percent, 32 percent and 29.44 percent, respectively.


Of those earning $75,000 to $99,999 a year, IRS.gov, TurboTax.com, hrblock.com, TaxCut.com and TaxAct.com accounted for 16.67 percent, 16.99 percent, 15.85 percent, 15.32 percent and 17.62 percent, respectively.


For taxpayers in the $100,000 to $149,000 income range, IRS.gov, TurboTax.com, hrblock.com, TaxCut.com and TaxAct.com accounted for 10.36 percent, 13.61 percent, 7.45 percent, 13.28 percent and 5.75 percent.


Finally, of those earning $150,000 and up, IRS.gov, TurboTax.com, hrblock.com, TaxCut.com and TaxAct.com accounted for 3.85 percent, 3.89 percent, 1.17 percent, 5.57 percent and 1.08 percent.


Thomas said taxpayers going online for the first time to file their taxes fueled much of the growth. Ease of completion, affordability and quicker returns were major enticements for the large number of middle-income consumers.


Financial services companies with bare-bones tax services should use this opportunity to convert these online tax filers into buyers of other Internet financial products and services, he said.


Many traditional companies are adapting to the online trend. TurboTax, for example, had 5 million customers for its software products. But another 2.2 million used the online product.


Similarly, Block, perhaps one of the most vulnerable in this rush to file online, is putting its 9,000 offices nationwide to work. The Kansas City, MO, company is integrating offline with online by asking people to send in their online documents for a last-minute check before submission. The documents are e-mailed, and Block then will send suggestions.


As for IRS.gov, visitors are not just going online to pay taxes.


"It's primarily for FAQs," Thomas said, "and they also have an electronic application, but that is primarily meant to be used by lower-income households as a free service based on income requirements."


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