Tax Time: An Important Season To Build Texans’ Financial Futures

Tax season is here. For many Texas families, the substantial tax refund they will get back is vital to their overall budget.  Last tax season, 2.6 million Texans claimed the EITC, earning back $6.9 billion or approximately $2,600 per filer.  Because tax refunds represent the largest lump-sum payment for the entire year, tax-time creates an important opportunity for families to save for a more secure future.
With two innovations by the U.S. Treasury, people now can save directly on their tax return, either by splitting their refund between a checking and savings account or by purchasing “Series I” U.S. Savings Bonds, making saving easier and more automatic.   These savings bonds are a good “starter” savings product for families because they can be purchased without a savings account and pay a decent annual interest rate (currently 1.76 percent) compared to basic savings accounts (.01 percent).
During tax season, more than 114,000 Texans get their taxes prepared at Volunteer Income Tax Assistance (VITA) sites. VITA sites typically serve households earning less than $50,000, although the average client earns slightly above $20,000.  These IRS-certified VITA sites, operated by local entities, provide free tax return preparation to low-income families and have emerged as a primary platform to encourage working families to save.
While saving at VITA sites is gaining momentum, relatively few VITA filers (less than 2 percent) purchased Savings Bonds or split their refund for the 2012 tax season. Despite the relatively low uptake, we have witnessed considerable growth in the number of savers at Texas VITA sites.  In 2012, the number of VITA savers doubled from the 2011 tax season to 1,728 because of the growth in projects encouraging filers to save their refund.  This tax season, we have identified 15 local projects that are incentivizing VITA clients to save a portion of their tax refund. Below we highlight this tax season’s largest tax-time savings projects in Texas including the OpportunityTexas Tax-Time Savings Project, as well as tax time savings projects taking place in Houston and San Antonio.
The OpportunityTexas Tax-Time Savings Project
OpportunityTexas, a joint initiative of CPPP and RAISE Texas, has been growing tax-time savings through our Tax-Time Savings Project (TSP).  TSP,  in its third year, includes two different projects: the Savings Bond Incentive Project and the Opportunity Savings Project.
TSP’s Savings Bond Incentive Project provides modest incentives to VITA clients to encourage them to save a portion of their tax refunds by distributing a $25 grocery or discount store gift card to filers that purchase at least $100 in U.S. Savings Bonds with their tax refund at participating VITA sites. Our 2013 partners include Foundation Communities in Austin and the United Ways of Texas. Local United Ways are carrying out the project at 37 VITA sites in the following nine communities and regions: Brownsville, Corpus Christi, Dallas, Fort Worth, Longview, Lubbock, Temple, Victoria and Wichita Falls.
In 2013, TSP added the Opportunity Savings Project, a partnership with the Texas Credit Union Foundation, which is offering a matched savings account to filers at VITA sites operated by Border Federal Credit Union in Del Rio and Coastal Community Credit Union in Galveston. Filers at their VITA sites are encouraged to open and deposit a portion of their refund into a savings account and build savings in the account over a one year period. For signing up, filers receive between a $25-50 gift card.  Next January, if the participant has a higher balance in their account than their initial deposit, they will receive a 1:1 match on their net savings up to $100.  The goal is to encourage savings throughout the year.  So far, we have seen strong demand for these accounts and the pilot is on track to meet its goal of opening at least 170 accounts.
San Antonio
San Antonio emerged as the only Texas community—and one of four nationally—to participate in a national demonstration project called Save USA, which aims to build the case for a federal tax credit that would incentivize low-income families to build first-time savings. Adapted from a pilot effort in New York City, Save USA offers a 50 percent match (up to $500) for filers that save a portion of their refund into a savings account and maintain their savings for approximately one year.
United Way of Greater Houston, in collaboration with Neighborhood Centers, is offering its United Way SAVE program to filers at Neighborhood Center’s 15 VITA sites.  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 on the lowest balance in their account over the project year. Their goal is to open at least 500 accounts this tax season, more than double the number of accounts opened last year.
Removing Barriers to Tax-time Savings
Despite these promising new programs, low income families have to overcome many institutional hurdles to save their tax refund for a more secure future.  For example, many state programs including SNAP, a nutrition program, and TANF, a cash welfare program, disqualify a person from participation if they have even minimal savings ($1,000 and $5,000 liquid asset limits for TANF and SNAP respectively) . This eligibility restriction is counterproductive to the very aim of these programs—to provide financial stability to families with the goal of reaching financial independence.
To address this issue, a provision of The American Tax Payer Relief Act of 2012 permanently exempts federal tax returns from asset tests for public assistance programs for one year beginning this tax season. While this policy change is a step in the right direction, this temporary exemption still discourages long-term savings.
Texas has also taken a few first steps to address this issue.  The state categorically exempts savings bonds for one year and certain college savings accounts from our asset tests for state programs.
To continue in this direction, the Legislature should pass HB 3845 and HB 3486 being considered this session that would eliminate or permanently exempt certain savings products such as United Way SAVE accounts, tax refunds and savings bonds, from asset limits for program eligibility.
One in two Texas families is asset poor, meaning they don’t have adequate savings to cover basic expenses for just three months if they lose an income.  Imagine the positive impact on our state’s high asset poverty rate if more Texans had opportunities and incentives like filers at VITA sites with asset-building tax-time savings products.
This piece is cross-posted from Opportunity Digest, a blog by OpportunityTexas, a joint initiative of CPPP and RAISE Texas.

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