Matched Dollar Incentives for Saving Tax Refunds

Several programs have piloted efforts to provide matched dollar incentives for individuals to place some or all of their tax refund in a savings account. These programs offer matching deposits up to 100% of the amount saved from tax refunds. Programs usually focus on low and moderate income individuals and families, require a minimum amount placed in savings, and a minimum time period before a deposit can be withdrawn in order to receive matching funds. Programs and matches are typically provided by government entities or nonprofit agencies.

Expected Beneficial Outcomes: Increased asset accumulation. Other Potential Beneficial Outcomes: Increased financial stability.

Evidence of Effectiveness: There is some evidence that programs that encourage low and moderate income individuals and families to save tax refunds, such as SaveUSA and $aveNYC, increase savings amounts. Additional evidence is needed to confirm effects. Assessments of SaveUSA and $aveNYC, matched savings programs for low and moderate income taxpayers implemented at Volunteer Income Tax Assistance (VITA) sites for several years around 2010, show greater savings among participants than non-participants. A majority of program participants kept deposits in specially designated accounts for at least one year, receiving a 50% dollar match for the pledged amount. Specific effects varied from program to program and between tax years. In the first year of both programs, participants had more short-term (non-retirement) savings six months after receiving match dollars than non-participants, and $aveNYC participants were more likely to have savings to cover one month of expenses than non-participating peers. Participants in the second year of the $aveNYC program were less likely to have taken out loans or skipped bill payments, and more likely to have withdrawn money from savings than non-participants. However, there was no difference in savings amounts six months after receiving the program match in the second year of $aveNYC. In the longer term, SaveUSA participants’ savings grew 30% more than non-participants. A study of the first year of $aveNYC suggests that financial hardship and limited understanding of program requirements can increase the likelihood that participants close accounts early, withdrawing their money before receiving matched funds. Assessments of the Refund to Savings initiative, which does not have a deposit match but uses savings messaging and choice architecture within tax software, suggest that prompts to save higher amounts may increase the amount saved from tax refunds. Moreover, messaging around saving for emergencies combined with changes to the way refund deposit options are presented may increase the number of individuals that save part of their tax refund. Putting part of a tax refund into a savings account may decrease material and health care hardship.
Impact on Disparities: Likely to decrease disparities.