For over 26 million American households, tax day is a relief. Thanks to the Earned Income Tax Credit (EITC), filing taxes triggers a refund that may be the largest lump sum of cash these families receive all year. Unfortunately, for many other families, it’s just another day. One in four who qualify for the EITC don’t file, and they don’t benefit from what’s really the country’s largest anti-poverty policy effort—currently at over $55 billion. For those with low-incomes and few resources, their tax refund is a welcomed infusion of cash that can be used to manage their poor finances. Some will use the money to pay off bills or make a strategic purchase or two. But it turns out that tax time is also the right time to jumpstart the savings process.
For the past three years, New York City has conducted a pilot designed to maximize this opportunity. With the help of nonprofit groups offering free tax preparation services, participants were able to receive a $1 match for every $2 deposited in a basic savings account. Impressively, almost 75 percent have continued to save a year after opening their account. This year, $aveNYC is spreading to more cities as SaveUSA. It is an initiative that demonstrates how even families with low incomes will choose to save if the incentives work and the process is made easy and accessible. This policy has been proposed on a national scale. With the Saver’s Bonus, people would be able to divert a portion of their refund into savings and if they don’t have an account, they can open one right on their tax return. This would make tax day even more auspicious.