Tax season is a miserable time of year for many, but some credit unions are gleefully looking forward to those filing deadlines — and building profitable new revenue streams while they're at it.
At the Raleigh, N.C.-based State Employees' Credit Union, for example, tax preparation services are growing by 15% a year, according to SVP of Tax Preparation Services Tenesha Carter. At the $3 billion, Herndon, Va.-based Northwest Federal Credit Union, tax preparation at a subsidiary of its wholly owned CUSO, NW Capital Management, has been a profitable revenue source since it started offering the service in 1997, according to the CUSO's president/CEO, Kevin Fisher. Today the Northwest Tax Group subsidiary handles about 900 tax returns a year compared to about 750 per year five years ago, Fisher said, and 94% of its clients are repeat customers.
Many credit unions offer tax preparation services by participating in the IRS's Volunteer Income Tax Assistance program, or VITA. The program provides matching grants to nonprofits and coalitions that give free tax help to qualifying taxpayers — typically the disabled, those who made $54,000 or less in 2015 or those with limited English proficiency.
That helps a lot of people and draws members closer to the credit union. For instance, Carter said SECU prepared a whopping 16,000 tax returns during the 2008 filing season — its first year offering tax prep services through VITA.
But later, the credit union, which has $31.8 billion in assets and 2 million members, went a step further.
"In 2010, we felt like we could add value to our member taxpayers who were not eligible for the free program," Carter explained. "So we also have a fee-based program that runs in conjunction with VITA. For those who are not eligible for the free tax preparation, they can participate at a flat fee of $75."
The 200,000-member Northwest FCU and its CUSO have followed a similar path.
"Offering these tax services was just a perfect complement to what we were doing on the investment management side," Fisher said.
NW Capital Management began offering tax services in 1997; it partners with a CPA firm that actually prepares the returns. Marketing is mostly print ads, tent cards in the branches during tax season, website ads and social media, Fisher noted.
Fees typically range from $250 to $300 and up, depending on the return's complexity; members get a 20% discount. The CUSO, which Northwest FCU wholly owns, keeps between 20% and 30% of those fees; the rest goes to the CPA firm.
Fisher offered some advice for credit unions interested in venturing into tax prep services.
"If they have a membership base that would probably have more complicated tax returns, then they'd probably want to hire a firm or a partner to come in and provide these services and enter into a contract," he said. "If they decide to go the other route, which is you build it more organically, then you probably need to go find a CPA or a certified tax preparer that you keep on staff and then you have to pay them, certainly year-round. You have to think about whether you're going to have enough business for this particular person to make up for their salary."
Read more about how credit unions are capitalizing on tax season in the April 13, 2016 issue of Credit Union Times.
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