Summary of JACKSON HEWITT TAX SERVICE INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on July 2, 2009.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including, but not limited to, those contained in "Part I. Item 1-Financial Statements" and notes thereto, "Part I. Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II. Item 1-Legal Proceedings" included in this report are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, cash flows, plans, objectives, future performance and business of Jackson Hewitt Tax Service Inc. All statements in this report, other than statements that are purely historical, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate" and similar expressions or future or conditional verbs such as "will," "should," "would," "may," and "could." These forward-looking statements involve risks and uncertainties.

Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements, because of, among other things, the following potential risks and uncertainties: our ability to execute on our strategic plan and reverse our declining profitability, improve our distribution system or reduce our cost structure; our ability to successfully attract and retain key personnel; government initiatives that simplify tax return preparation or reduce the need for a third party tax return preparer, improve the timing and efficiency of processing tax returns or decrease the number of tax returns filed; delays in the passage of tax laws and their implementation; the success of our franchised offices; our responsibility to third parties, regulators or courts for the acts of, or failures to act by, our franchisees or their employees; government legislation and regulation of the tax return preparation industry and related financial products, including refund anticipation loans, and the failure by us, or the financial institutions which provide financial products to our customers, to comply with such legal and regulatory requirements; the effectiveness of our tax return preparation compliance program; increased regulation of tax return preparers; our exposure to litigation; the failure of our insurance to cover all the risks associated with our business; our ability to protect our customers' personal and financial information; the effectiveness of our marketing and advertising programs and franchisee support of these programs; disruptions in our relationships with our franchisees; changes in our relationships with financial product providers that could reduce the revenues we derive from our agreements with these financial institutions as well as affect our customers' ability to obtain financial products through our tax return preparation offices; changes in our relationship with Wal-Mart or other large retailers and shopping malls that could affect our growth and profitability; the seasonality of our business and its effect on our stock price; competition from tax return preparation service providers, volunteer organizations and the government; our reliance on technology systems and electronic communications to perform the core functions of our business; our ability to protect our intellectual property rights or defend against any third party allegations of infringement by us; our reliance on cash flow from subsidiaries; our compliance with credit facility covenants; our exposure to increases in prevailing market interest rates; our quarterly results not being indicative of our performance as a result of tax season being relatively short and straddling two quarters; certain provisions that may hinder, delay or prevent third party takeovers; changes in accounting policies or practices and our ability to maintain an effective system of internal controls; impairment charges related to goodwill; and the effect of market conditions, general conditions in the tax return preparation industry or general economic conditions.

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also

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cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. As a result of these factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

We manage and evaluate the operating results of our business in two segments:

• Franchise operations: This segment consists of the operations of our franchise business, including royalty and marketing and advertising revenues, financial product fees and other revenues; and

• Company-owned office operations: This segment consists of the operations of our company-owned offices for which we recognize service revenues primarily for the preparation of tax returns.

Jackson Hewitt Tax Service Inc. is the second largest paid individual tax return preparer in the United States based upon the number of individual tax returns prepared and filed with the Internal Revenue Service ("IRS"). In fiscal 2009, our network consisted of approximately 6,600 franchised and company-owned offices and prepared 2.96 million tax returns. We estimate our network prepared between 3-4% of all tax returns prepared by a paid tax return preparer. Our revenues consist of fees paid by our franchisees, service revenues earned at company-owned offices, and financial product fees. "Jackson Hewitt," "the Company," "we," "our," and "us" are used interchangeably in this report to refer to Jackson Hewitt Tax Service Inc. and its subsidiaries, appropriate to the context.

Seasonality of Operations

The tax return preparation business is highly seasonal, and we historically generate substantially all of our revenues during the period from January 1 through April 30. In fiscal 2009, we earned 95% of our revenues during this period. We operate at a loss during the period from May 1 through December 31, during which we incur costs associated with preparing for the upcoming tax season.

Financial Products Agreements

We earn financial product fees primarily from financial institutions that collectively provide financial products, including Refund Anticipation Loans ("RALs") and Assisted Refunds, to the entire network of Jackson Hewitt Tax Service offices during the tax season in the third and fourth fiscal quarters. We have agreements under which these financial institutions pay us a fixed fee to offer, process and administer such financial products through Jackson Hewitt Tax Service locations as well as variable payments upon the attainment of certain contractual growth thresholds. These Agreements expire on October 31, 2010.

We have recently learned of potential structural changes under consideration with respect to the offering of RAL and Assisted Refund products by certain of our bank partners, including lowering the APR in the RAL program. These changes, which could go into effect as early as the 2010 Tax Season, have not been finalized. If these changes were to be implemented, such changes would likely impact the economics to us under these programs. If this were to occur, we would likely give consideration to changes in our client pricing structure with the goal to effectively offset the potential reduction in economics from these programs.

Walmart Update

In March 2009, we entered into an agreement with Walmart that grants us the exclusive right to provide tax preparation services within Wal-Mart stores during the 2010 and 2011 tax seasons. Under the expanded Walmart

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opportunity, we will be adding new Walmart store locations to our overall distribution network, and will work closely with Walmart to jointly drive tax preparation customers and Walmart associates to our Walmart store locations.

We are in the process of finalizing Walmart store locations and expect to be in approximately 1,500 to 1,750 Walmart stores in the 2010 tax season. This effort will likely be completed by the end of September 2009. The range in Walmart store locations is somewhat below the previously anticipated number of Walmart store locations, but still provides for a solid incremental growth opportunity. The lower Walmart store count is the result of Walmart's initiation of a remodeling effort in its smaller stores, which has resulted in our inability to "fit" into certain Walmart store locations. We are continuing to work with Walmart to optimize the opportunity to operate in these smaller stores in 2010.

Management Consultant Engagement Concluded

In August 2009, the management consulting firm that we retained to work jointly with us to more fully understand the sources of our weak performance in the 2009 tax season concluded their engagement. Some of their findings were not entirely new to us, but the relative impact on our business and what we needed to do differently was more clearly defined. The following areas represent the principal initiatives we will focus our attention on and we believe will result in improved operational and financial performance in the 2010 tax season:

• Put into practice a renewed focus on our core business - tax return preparation with a keen emphasis on client satisfaction and retention;

• Improve tax return preparer training and retention;

• Effectively execute a more impactful pre-season financial product;

• Significantly enhance our overall marketing program with local marketing effectiveness at the forefront;

• Employ a more effective pricing strategy;

• Improve the performance of our company-owned office operations segment;

• Effectively execute on our exclusive Walmart arrangement;

• Successfully launch our first-ever online tax return preparation product; and

• Achieve a more collaborative partnership with our franchise community.

We believe this strategy begins with getting back to basics - our core business of providing quality, accurate tax return preparation - and doing so with a focus on meeting and exceeding the needs of our clients in terms of pricing, value, and their overall experience at Jackson Hewitt.

Management Change

On June 4, 2009, the employment of Michael C. Yerington, formerly our Chief Executive Officer and President, was terminated. Upon termination, Mr. Yerington also resigned as a director of our Board. On the same day, our Board of Directors announced that Harry W. Buckley was appointed Chief Executive Officer, President and a director on our Board.

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RESULTS OF OPERATIONS

Our consolidated results of operations are set forth below and are followed by a more detailed discussion of each of our business segments, as well as a detailed discussion of certain corporate and other expenses.