Tax time represents a unique opportunity for many consumers, particularly those with lower incomes, to make decisions about saving all or some of their tax refund to improve their financial standing, a new paper released Monday from the federal consumer financial protection agency advises.
In particular, the paper from the Bureau of Consumer Financial Protection (BCFP, formerly known as CFPB) suggests three “strong reasons” for lower income consumers to consider saving at tax time:
- their tax refund is the biggest single lump sum they will receive all year;
- with little to no savings, lower-income consumers are more economically vulnerable to financial shocks;
- filing a tax return provides an “easy and automatic way to save some or all of their tax refund.”
The paper, “Building a brighter future by saving at tax time,” (a follow up to a previous effort on the topic released last year), offers observations on ways that lower- and moderate-income consumers save and how saving activity can be better measured.
According to the paper, in 2018:
- More than 350,000 consumers were provided free tax preparation services through the agency’s Volunteer Income Tax Assistance (VITA);
- 255,902 consumers had their taxes prepared at a site using BCFP information;
- 181,598 consumers received a refund.
Of those receiving a refund, BCFP said, 64,539 claimed the Earned Income Tax Credit; 125,199 used direct deposit to receive their refund; 4,375 (3%) used Form 8888 to split their refund; 848 (.6%) purchased U.S. Series I Savings Bonds.
In addition, BCFP said the paper identifies two new practices adopted by several VITA programs to help lower-income consumers save. The first, “Special Financial Well-Being Events,” connects tax filers to financial education, credit counseling, and other services associated with their personal finances through community partners and other taxpayers through local events.
The second, “Advisory Groups to Develop Tax Time Savings Strategies for VITA,” aim to help develop a more community-focused saving encouragement effort and increase tax time saving, the bureau said.