Preparing a tax return is perhaps the least enjoyable financial task there is, but some credit unions are gladly jumping in to relieve the misery – 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 per year compared to about 750 per year five years ago, Fisher said, and 94% of its clients are repeat customers.

“It's not a revenue leader, if you will, but I think it's a really important product that you have to have so your members are not going away from your institution and having those services done elsewhere,” he said.

VITA Benefits

Many credit unions offer tax preparation services by participating in the IRS's Volunteer Income Tax Assistance program. 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 two 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.”

Today about 90% of the returns SECU does are done for free via the VITA program; the other 10% come from SECU's fee-based program, she added. About 3,000 tax preparers, who are also full-time SECU employees, offer tax prep services in each of SECU's 256 branches during business hours.

“During tax season, it's eight hours a day, multiple people in the branches; we take all comers,” she said.

Advertising largely consists of just flyers and banners, but SECU's highest-producing branch last did about 1,000 tax returns last tax season, she added.

Partnering Up

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 mostly encompasses 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 keeps between 20% and 30% of those fees; the rest goes to the CPA firm.

“We have a relationship with them in which they provide the expert service to our clients and our members and then we provide a little bit of administrative work on the back end of it,” he explained. “Most of the hours worked is really just doing administrative stuff, scheduling appointments, making sure tax returns are distributed in between the offices and back to the client and things of that nature. But the partners or the CPAs actually meet and work with the clients and members.”

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 whom 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.”

The Human Touch

Though signage and social media are typical efforts, Fisher said one particular marketing tactic gets the best results.

“The most effective way that we get a good client or clients is through our seminars,” he said. “We start usually in November and typically end in late January, and we provide anywhere from four to five seminars to the general public regarding tax issues and kind of getting them ready for the season. This year we were drawing record crowds. On two of our seminars, we had to add second dates because we had hit the overflow numbers.”

Changes in the tax code tend to increase interest, he added.

The seminars typically start off with one of the CPA firm's accountants going over simple tax questions and changes in the tax code that year. The magic happens at the end, he said, when the accountant simply opens the floor to questions for 30 to 45 minutes.

“If [participants] don't want to do it in that forum, he sticks around and typically answers those questions privately for about 30 minutes,” he said.

The Payoffs

Last year, tax preparation services at Northwest Tax Group generated about $110,000 in revenue and net income of $55,000 – a 50% margin, Fisher said. But perhaps equally compelling are the strengthened member relationships and opportunity for lead generation.

“It certainly makes [members] more loyal and stickier to the organization,” Fisher said. “As the credit union CEO or anyone running the program, that's what you want. You want them to be loyal to your organization and not going outside and getting these services elsewhere.”

Indeed, members who have more than just simple lending or depository relationships with their credit unions are stickier, according to a 2015 study by research and consulting firm Kehrer Bielan: When people believe a credit union offers all the financial services they need, the number who say they'd still prefer banks falls by 16%, the study said.

“When you're doing someone's tax return, it gives you a snapshot to figure out other ways you can help them,” Fisher said. “It does start a lot of conversations that might lead into other areas.”

Instant Insights /

Credit Unions Capitalize on Tax Season

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