By Scott Zienty
Tax season is here, and for many Texas families, their tax refund presents an important savings moment. Unfortunately, it’s not easy for most filers to save their refund because they have “pre-spent” it. Low-income families also have to overcome institutional hurdles to save. For example, an outdated Texas policy attaches liquid asset limits for the Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families.
To help families overcome some of these challenges, organizations have designed projects to encourage filers to take advantage of this opportunity to save. SaveUSA, a rigorous evaluation of a matched tax-time savings account offered at select VITA sites, found that a savings match encouraged low-income tax filers to invest a portion of their refund in a savings account. About 90 percent of filers offered the SaveUSA account choose to save their refund compared to less than a quarter of filers who were not offered the matched account, according to the study. Refund to Savings (R2S), another initiative examining how to help filers build savings, tested the effects of savings defaults, anchors (suggesting a certain percentage of one’s tax refund to save) and messages encouraging filers to save in Intuit’s TurboTax Free File software and found that these interventions increased filers’ savings by 26 percent.
During tax season, more than 125,000 low-income Texans get their taxes prepared at Volunteer Income Tax Assistance (VITA) sites, also known as community tax centers, that provide free tax return preparation. While saving at VITA sites is gaining momentum, less than 2 percent of filers purchased savings bonds or split their refund for the 2013 tax season. The majority of clients who saved their refund did so through a project encouraging them to save. This tax season, we have identified 14 local projects incentivizing VITA clients to save a portion of their tax refund. For the past three tax seasons, Texas’ three largest projects – OpportunityTexas’ Project, San Antonio’s SaveUSA and United Way of Greater Houston’ United Way SAVE program – have led to 4,777 filers saving over $1.75 million.
The OpportunityTexas Tax-Time Savings Project
OpportunityTexas, a joint initiative of CPPP and RAISE Texas, has been growing tax-time savings in Texas through our Tax-Time Savings Project (TSP). TSP, in its fourth year, includes two different promotions: Opportunity to Save and Opportunity Savings Accounts. Opportunity to Save (previously the Savings Bond Incentive Project) provides $25 grocery and discount store gift card incentives to VITA filers who purchase at least $50 to $100 in U.S. savings bonds with their tax refund at participating VITA sites. Our 2014 partners include Foundation Communities in Austin, Goodwill of Central East Texas in Lufkin, the United Ways of Texas and local United Ways in Brownsville, Corpus Christi, Fort Worth, Longview, Lubbock, Montgomery County, Port Arthur, and Wichita Falls.
The Opportunity Savings Account project, in its second year, is a partnership between OpportunityTexas and the Cornerstone Credit Union Foundation. The Border Federal Credit Union in Del Rio and Coastal Community Credit Union in Galveston offer $25 to $50 gift cards to filers who open and deposit between $250 to 500 of their refund into the savings account at their VITA sites, as well as a 1-to-1 savings match up to $75 for building savings in the account over an approximate one-year period. The first year of the project was a success, with 119 participants saving a total of $56,240 – a return of $4.40 in savings for every $1 investment in incentives. Those who qualified for the match – roughly two- thirds of all participants – averaged an ending account balance ranging from $540 to $650, including the match.
San Antonio was one of four communities nationally to participate in SaveUSA, a national demonstration to make the case for a federal tax credit that would incentivize low-income families to build first-time savings. SaveUSA offers a 50 percent match (up to $500) for filers who save a portion of their refund into a savings account and maintain their savings for approximately one year. Although the SaveUSA pilot ended last tax season, the United Way of San Antonio and Bexar County is continuing to offer the account at select San Antonio VITA sites for a fourth year.
United Way of Greater Houston, in collaboration with Neighborhood Centers, Inc., is offering its United Way SAVE account for a third tax season to filers at Neighborhood Tax Centers across Houston. Filers are encouraged to open and save up to $1,000 of their refund in a United Way SAVE account. Next January, clients will receive a 25 percent match –up to $1,000 – on the lowest balance in their account over the project year. Their goal is to open at least 475 accounts this tax season, and they have hired four asset specialists to promote the program at their tax sites.
In addition to these Texas projects, Doorways to Dreams (D2D) Fund is coordinating SaveYourRefund, a nationwide prize-linked savings promotion to encourage tax-time savings. In its second year, the promotion allows those savers to enter into weekly $100 drawings as well as a $25,000 grand prize photo contest.
With one in three Texans without a savings account and nearly 50 percent without sufficient emergency savings, it’s important that current efforts be taken to scale to encourage more families to save for a more secure future. One way to do so is through a federal tax credit. Last year, Congressman José Serrano of New York introduced the Financial Security Credit Act of 2013, federal legislation that would establish a refundable tax credit to encourage low- and moderate- income individuals to build savings at tax time. Tax-time savings can also be taken to scale through tax software, such as through Intuit’s above mentioned initiative. OpportunityTexas also hopes that more Texas VITA sites will operate projects that encourage filers to save and develop partnerships with financial institutions to open savings accounts for filers. Help us spread the word about the tax-time savings moment and Texas projects helping filers save by sharing this blog post!