Tax-Time Savings: Opportunities and Strategies for Policy and Practice

Research discussed in the Report on the Economic Well-Being of U.S. Households in 2017, from the Board of Governors of the Federal Reserve System (2018), noted that, “Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money.” This lack of savings makes families vulnerable to economic shocks and unable to take advantage of educational, business, or other opportunities that come with a price tag. In addition, the stress that can come with trying to manage inevitable economic shocks can have health and other consequences. According to data from the 2013 Panel Survey of Income Dynamics, 7 percent of those surveyed who reported zero or negative wealth reported psychological distress, compared with only 1.5 percent of those with high wealth (Purnell & Hajat, 2017). People with zero to negative wealth also reported higher rates of poor health, obesity, and smoking (Purnell & Hajat, 2017). Given these statistics and resulting challenges, US organizations and government entities have mounted considerable efforts to increase savings rates. For many families, particularly those with low- or moderate-income, the check for their tax refund and credits is the largest check they receive all year. This provides a meaningful, often annual, opportunity to save. In this paper we describe several policy and practice strategies that show how tax time is the prime time to save.