Tax time is an opportunity to Start Small and Save Up
Today we released a report entitled Tax Time: An Opportunity to Start Small and Save Up that discusses the results of the CFPB’s Tax Time Savings Initiative for the 2019 tax season.
Each year, the Bureau invites Volunteer Income Tax Assistance (VITA) programs to participate in the Bureau’s Tax Time cohort to encourage savings at tax time. The programs selected are offered tools, training, and technical assistance based on best and promising practices.
The Bureau’s 2019 Tax Time Savings cohort included 75 VITA programs from 33 states and the District of Columbia. Through direct feedback from participating VITA programs, this report provides insights on how those programs incorporated savings encouragement into their tax preparation services, the lessons they learned, and best and promising practices the programs employed to help consumers achieve their savings goals.
Key Highlights
The paper found that:
- 4.49 percent of people served by cohort programs saved a portion of their refund while filing their tax return as compared to just under 1 percent of VITA customers nationally.
- Twenty-eight programs collected data on people’s intent to save once they receive their refund. Among those who expected a refund, 42 percent said that they would save a portion of their refund for at least 6 months.
Savings at tax time
Every tax season since the CFPB was formed, it has worked to help taxpayers build savings from their tax refunds.
Having a savings cushion provides more financial stability and security, especially for consumers who have limited income or are economically vulnerable. For people with lower incomes, tax time represents a unique opportunity to save because a tax refund is the often largest check people will receive all year. Saving all or part of that refund can help consumers prepare for unforeseen expenses throughout the year or perhaps reach a larger savings goal.
The Bureau’s continuing effort to encourage saving at tax time is now part of a larger initiative to support people in building liquid savings. Start Small, Save Up is a CFPB initiative to increase liquid savings in order to help more families achieve their short- and longer-term financial goals by building emergency savings to withstand a financial shock. Encouraging saving at tax time is one of the key opportunities for many families with limited financial resources to build liquid savings.
This paper provides a description of how having liquid savings contributes to people’s financial stability and resiliency. This annual report builds on years of research and collaboration with VITA tax preparers with the goal of increasing the longer-term financial well-being for individuals and families.