Unlocking the power of tax-time

The families we serve unlock an average of $4,500 in federal tax refunds each year — a check size that can be as much as 25% of their annual household income. Imagine receiving a quarter of your annual income in one check! It’s a big deal.

The link between tax-time and longer-term savings is strong, and one that is well-substantiated and studied by organizations like commonwealth and Prosperity Now. Nearly 40% of families receiving the Earned Income Tax Credit allocate some of their refund to savings and 85% use a piece of it to pay off debt.

For families like Megan’s, tax-time is an anticipated event. She’s a single mom who works the cash register at the local convenience store outside Dallas. She has a young child and is working hard to save and to budget, tracking expenses in her phone’s notepad. For her, the large size and lump-sum nature of this check gives her the luxury and cognitive space to consider longer-term goals. In advance of tax-time she allocates that refund check against future expenses that will both help her weather unpredictable times ahead and advance on that path to economic mobility.

She uses 30% to pay down debt and pre-pay bills, saves 20% for her child’s future, allocates 10% to car maintenance, and spends 30% on furniture, appliances, and child expenses that will hit in the coming year. She uses the remaining 10% for treats for herself and others, like new toys for her child. She’s not alone in her precise allocation. Academic qualitative research and our own interviews demonstrate that once families know these funds are coming, they follow similar patterns.

As we head into this tax season, we at Let’s Get Set are helping families, like Megan’s, know what’s coming so they can secure their full tax refund and unlock the full potential of tax-time.