The final segment in this three-part series recapping the defining issues of TY14 is Economic Security.
Recap: Economic security remains top of mind for taxpayers.
Each tax season, many individuals and families get a boost to their economic security from tax refunds. This year was no exception as an estimated more than $255 billion dollars of refunds will be issued for TY14, putting a large amount of money back into the hands of taxpayers. According to the IRS, as of April 17th the average refund was $2,711, amounting to a sizeable lump sum of money for many of the 80% of filers who are owed a tax refund. What taxpayers do with those refund dollars is an important consideration.
For those struggling to make ends meet, a tax refund can be a life preserver. In a recent study from the Federal Reserve Board on Household Economic Well-Being, almost half of study respondents reported that they either would not be able to meet a $400 unexpected expense or would need to sell something or borrow money to cover it. Low-income savers in the study reported saving for emergency expenses as their primary saving goal. Building a financial cushion to protect against the unexpected is a step toward security for many households.
For those on a more solid economic footing, refund dollars can be a down payment toward achieving major life milestones. A survey sponsored by the American Institute of CPAs suggests that pursuing life milestones such as higher education, marriage, and home purchase, is often delayed due to financial concerns.
Because a tax refund is so significant for so many people, policy makers have begun to focus on the tax time moment as a key opportunity to help taxpayers take positive steps to strengthen their financial situations. Organizations like Doorways to Dreams have made it their business to target the tax filing process as a key to helping people build a foundation for their financial futures. And Intuit has supported efforts to determine whether behavioral economics can influence choices about whether people save their refunds.
Leveraging the tax time moment could be a critical way to improve overall savings and economic security among lower income households.