H&R Block Pricing this year

H&R Block has posted its tax preparation prices for the 2012 filing season.  Since they are the leading tax preparation franchise (nationwide as well as locally), and many of our VITA site clients have used them in the past, we can get a sense of how much the free tax prep services our students provide are saving our taxpayers, who are low-income working families and senior citizens with relatively simple returns. 

Of course, there are NO fees for any returns prepared at our VITA site.   All our VITA preparers at the Union College site are certified on Basic and Intermediate level returns, which include virtually all returns in the first four categories listed below.  I am certified at the Advanced level, and I encourage the student preparers to consult with me whenever they are not sure to handle a particular issue.

Most returns in the fifth category are outside the scope of a VITA site, so we would refer such taxpayers to a professional preparer.   I do not hesitate to refer taxpayers to professionals when I feel that the complexity of their situation might be beyond our ability to deal with it correctly.  If I have any doubt at all, I prefer that we refer out to a professional.  We don't do our taxpayers any favors if we prepare a return incorrectly.  Note that we are not permitted to make specific recommendations of particular tax preparers or firms, but we can refer taxpayers to this IRS advice for choosing a paid preparer page.

With that as preface, it is interesting to examine the H&R Block pricing schedule.  [Update:  I just read the "fine" print on the H&R Block Schedule and discovered that they list a separate add on charge for Earned Income Credit (EIC) returns, $40 with no dependents and $55 with dependents, so I have added those in red below to the most common types of returns that include EIC.  Block is apparently blaming this fee on the costs of IRS compliance.]

H&R Block Pricing Schedule:
1040EZ /no dependents 

(standard deduction, no credits, filing status is single or MFJ)
$39 (Federal) + $39 (State) = $78  + $40 (for EIC) = $118

1040A/no dependents  

(standard deduction, all federal credits, any filing status)
$99 (Federal) + $39 (State) = $138  + $40 (for EIC) = $178

1040A/with dependents 

(standard deduction, all federal credits, any filing status)
$109 (Federal) + $39-$79 (State) = $148-$188 + $55 (for EIC) = $203-$243 

1040  (moderately complex)

(itemized and above-the-line deductions, all federal credits)
$119-$299 (Federal) + $39-$89 (State) = $158-$288

1040 (complex) 

(investments, small business/self-employed, rental property, partnerships/corporations)
"Starting at" $149 (Federal) + $39 (State) = $188 and up

My comments:

Last year, Block was promoting loss-leader "Free" pricing on 1040EZ returns.  That strategy might have been profitable last year, because once the taxpayer was in the door, they could attempt to "upsell" him on their very profitable ancillary services including Refund Anticipation Loans (RALs).   Most Block customers whom I have had the occasion to talk to in previous years have told me that they wound up spending a lot more than Block's "list" price for very simple returns, primarily due to opting for a RAL in conjunction with their tax return.  However, federal bank regulators have been tightening the screws and it appears that Block will no longer be able to market RALs.   Maybe that is why Block is raising their "list" prices on the simplest returns this year.  Of course, they still have several other profitable ancillary services, including "Peace of Mind®" audit insurance and their "Second Look®"program.

It is also interesting to compare Block's fee schedule for their more complicated returns to their charges for what are perhaps the most famous returns they have ever prepared, Sarah Palin's 2006 and 2007 returns.  Those were definitely in the most complex category.  Their 2006 Form 1040 return had four qualifying children (QC) dependents, three of them eligible for the child tax credit.  Their income included wages, interest, dividends, income from two separate Schedule C self-employment business returns involving depreciation expenses, capital gains on the sale of land, and "kiddie tax" on their youngest daughter's dividend income from the Alaska Permanent Fund.    Their deductions included home mortgage interest, state and local taxes, gifts to charity, union dues for the First Dude, and tax prep fees.

Given the complexity of the Palin tax returns, the tax prep fees charged by H&R Block seem surprisingly modest, even though they did not have to file a state tax return (because Alaska has no state income tax).  The Palin 2007 Schedule A lists only $178 as their tax prep fee; their 2006 Schedule A listed a charge of $213.    However, tax law professors have raised a number of issues with the Palin tax return, which you can read about in Tax Profs Agree:  Governor Palin's returns are wrong, so perhaps the Palins would have been better advised to seek a professional preparer knowledgeable enough to ask a few more probing questions than the H&R Block preparer appears to have done.

Governor Palin's running-mate, John McCain, had a tax return roughly comparable in complexity to the Palin return (different forms, but a roughly comparable number of pages) and he paid $3,500 in tax prep fees in 2007 (and $3,450 in 2006).  However, Senator McCain and his wife filed separate returns.  Mrs. McCain's return was far more complicated and reported far more income than her husband's return.   Mrs. McCain did not disclose the detail of her Schedule A itemized deductions, but it is safe to infer that she spent far more on tax prep than her husband.  

All the returns released by Presidential and Vice Presidential candidates and office-holders are available here.  Sarah Palin appears to be the only candidate to have used H&R Block, and also the only candidate to efile her return.

Additional thoughts:  H&R Block famously made mistakes on their own corporate tax return a few years ago--in early 2006 Block put out a press release acknowledging that the company had understated their true tax liability by $32 million on their own state corporate tax returns and their financial statements to shareholders and the public for 2004, 2005, and the first quarter of 2006.

It's not only H&R Block that screws up tax returns, of course.   I have previously written about the errors made by Treasury Secretary Timothy Geithner (who used TurboTax to prepare his own returns) and former House Ways & Means Chair Charles Rangel (who hired high-priced accounting firms.)   Hiring a CPA--or a Treasury Secretary--or a Congressman who wrote much of the tax code himself--is no guarantee that the return will be prepared more correctly than a H&R Block franchise employee will prepare it.  Some H&R Block employees I know are excellent.  And a CPA once told me that it was common knowledge among CPAs that taking the H&R Block in-house tax class was a great way to help prepare for the nuts and bolts tax part of the CPA exam.

And, sadly, many VITA sites have inexcusably high error rates as well.

That is why our VITA site has a four-step Quality Review process that goes beyond IRS minimum requirements.   At H&R Block, taxpayers have to pay an extra fee if they want a second employee to take a "Second Look" at the return.  At our VITA site, we believe that all tax returns deserve at least a second look by a quality reviewer, and a third look by the original preparer walking the taxpayer line by line through the logic of the tax return before we ask him to sign, and a fourth look by me before the return is efiled.