Personal Finance

H&R Block’s new plan aims to take the ‘pain point’ out of tax prep pricing

H&R Block — facing potential pressure from tax reform — is changing how it will charge customers at its tax offices and claims it has also lowered those prices.

The Kansas City-based tax preparation firm said it will post prices just inside its doors during the upcoming tax season. Customers will be able to calculate how much they’ll pay for tax work before the work even begins.

Traditionally, consumers who seek tax help find out the cost when their returns are ready to file.

“Pricing is so important because we know it’s been the consumer’s biggest pain point,” H&R Block CEO Jeff Jones said Monday. “The mystery — I don’t know what I’m paying until after it’s done.”

Jones, the former president of Uber, said these changes have been in the works for two years, including efforts predating his arrival last year at H&R Block.

Both actions — posted prices and lower prices — break dramatically from H&R Block’s and the industry’s long-established practices.

“The approach to pricing in the business really wasn’t a consumer-friendly approach, and our prices over time had gotten too high,” Jones said. “We had taken price increases too many years in a row.”

For example, H&R Block’s tax office customers paid an average of 2 percent more to have their 2017 taxes done than the year before. The company also has turned to add-on products — such as its Peace of Mind service plan, Refund Advance and Tax Identity Shield— for additional revenues.

Jones revealed the company’s new pricing strategies to H&R Block franchise operators Monday during their annual pre-tax season convention in Nashville, Tenn. He said franchisees are allowed to set their own prices.

Lowering prices is one tactic Jones has embraced to deal with the declining number of filers coming to H&R Block offices in recent years. Tax reform threatens to accelerate the decline.

Congress increased the standard deduction for 2018 tax returns. It means many filers who previously itemized their deductions to get the lowest tax bill can do so by claiming a standard deduction. Federal tax returns also are simpler this year.

Both changes mean filers may be less likely to seek help.

Analyst Mark Palmer told clients of BTIG Research in June that the higher standard deduction could cut into Block’s tax office client total by 2 percent, 5 percent or 10 percent depending on how “severe” the impact becomes.

Jones argues, however, that a higher than average share of Block’s customers already claim a standard deduction. He said the change won’t be dramatic this tax season for Block.

Jones has acknowledged that price cuts likely will mean lower revenues this year but expects growth to prevail in the long run.

H&R Block’s new prices at tax offices aim to fit every federal filer into one of five categories.

Homeowner: Filers who paid mortgage interest.

Family: Filers who claim dependents.

Student or retired: Filers who paid student loans or tuition, or received retirement income.

Complex: Filers with income not reported on their W-2.

Simple: Filers whose only income is reported on their W-2 forms.

The five categories work like filters, starting at the top. For example, filers who paid mortgage interest in 2018 will land in the Homeowner price tier, even those who claim dependents, paid student loans or tuition or received retirement income.

Similarly, filers who did not pay mortgage interest but did claim dependents will land in Family even if they paid student loans or received retirement income.

Consumers will pay less the farther down the five categories they land. Simple filers pay the least at $59 for a federal return; Homeowners the most. In addition, filers will pay $59 for each state tax return that Block prepares.

Pricing details for each tier won’t be available until closer to the New Year to keep competitors from reacting.

Block has figured that “nearly half” of its customers will be covered completely by one of the five categories for federal returns. It means those customers will know their prices based on that amount and whether they file state returns.

The majority of Block customers, however, will need additional tax items — Block has identified 20 — that will trigger additional charges, which will also be displayed. These include filing for an Earned Income Tax Credit, reporting business income and owning a farm.

But Jones said price cuts are built-in even with these additional tax items, particularly for taxpayers the company hopes to attract in greater numbers.

A family of four, Jones offered as an example, with one state form and a child tax credit but no mortgage will be able to tell that H&R Block’s work will cost a total of $270. He said that is 12 percent to 13 percent lower than before.

Students with no state income tax, such as in Florida, will pay $139, Jones said, adding that this represents a 15 percent reduction from last year.

Not everyone is getting a price cut.

Jones said the $59 Simple federal filer with a $59 state return, or $118 in total, comes in at roughly the same price as last year.

Block said its preparers also can “guide and answer any questions” about a taxpayer’s costs before doing the work.

Changes to H&R Block’s digital tax services, whether online or software, won’t lower prices but will give consumers a running tab on their H&R Block bill.

Previously, consumers started by purchasing the level of digital tax help they expected to need. If additional forms were needed, the final tax bill would be higher.

This tax season, an alert will pop up to tell users of Block’s digital tax service when a tax item increases their total charge.

Reach Mark Davis at 816-234-4372, @mdkcstar

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