News Flash: People Do Save Some of Their Tax Refund, but They Could Be Saving More
Do you expect to receive a tax refund this year? If so, are you planning to save at least some of it? Would you be surprised to learn that more than 60% of low-and-moderate income (LMI) households who expect a tax refund plan to save some of it? And that the majority of those households plan to save for six months or more? For many years, and based on the limited information that has been available through reporting on the number of tax filers who deposit their tax refund into more than one bank account using IRS Form 8888 (Allocation of Refund), low-and-moderate income filers, particularly those using VITA sites, weren’t perceived to be saving any of their tax refund. Now we know better.
Last year, we reported on the work that many VITA programs are doing to help the families they serve, in ways above and beyond tax preparation, to help those families maximize the tax moment to achieve their financial goals. We learned that many programs are providing additional financial capability services, and even for those programs who don’t, preparing accurate returns for LMI households is, in and of itself, a financial capability service. However, many questions remained about the true value of the tax time moment from the perspective of LMI households and the efficacy of financial capability services and tax time interventions in promoting and building financial capability for LMI households. Now we know (or at least have a better idea).
With support from Intuit Financial Freedom Foundation, Prosperity Now’s Taxpayer Opportunity Network partnered with Washington University Social Policy Institute and SaverLife to learn more about the savings behaviors of low-and-moderate income filers across three platforms and the implementation and effectiveness of various tax time interventions in 2019.
Through this research project we learned a lot about the savings intentions, behaviors and financial well-being of LMI tax filers, as well as the systematic implementation (or lack thereof), of savings and other financial capability supports at VITA sites.
Briefly, here’s what we learned:
- LMI taxpayers are saving some of their refund at higher rates than previously thought or measured: Approximately 60% of VITA and TTFFP filers intended to save their refund and roughly two-thirds of those with savings intentions went on to successfully save.
- LMI households are using their tax refund to “catch up” rather than to “get ahead”: While savings for both emergencies and long-term goals were among the top uses for filers in each platform, VITA and TTFFP filers were more likely to report using the refund to purchase household necessities and pay down debt.
- Savings interventions and supports are not being consistently offered or implemented at VITA sites: Tax-time savings and other financial capability interventions were not being implemented systematically across VITA programs and sites and were not a priority for Site Coordinators compared to preparing accurate tax returns for VITA filers.
- Having savings on hand to help guard against financial hardship contributes to a higher sense of financial well-being: We found that tax filers who both intended to save and successfully saved some of their tax refund experienced fewer financial hardships and increased financial well-being in the months subsequent to filing their tax return.
The knowledge gained through this research is useful as we chart our course for 2020 and beyond in search of more opportunities to provide tools, resources and support for VITA programs and advancing policy interventions to help maximize the value of the tax time moment for LMI households.
If you’re interested in learning more about our research and findings, check out the full report here.