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Last tax season the IRS sent refund checks averaging $2,057 to 100 million tax filers. These cash infusions are often the best chance people have to save some money in any given year. This is particularly true for lower income families. Over 20 million lower income families—one in six taxpayers—received an average $1,700 boost to their refund from the Earned Income Tax Credit (EITC), a refundable tax credit designed to reward work.

While tax refunds are certainly valued by American families, an enormous opportunity is being missed. Many families may spend rather than save their refunds because they do not have an easy way to convert a portion of these tax windfalls into savings and appreciating assets. Recent research finds that many Americans—including lower income ones—can and will save their refunds if offered appropriate incentives and a clear way to do so. The key challenge for policymakers is to facilitate and incentivize savings of tax refunds into existing—and possibly new—savings products. And for the estimated 8.4 the million Americans who do not have bank accounts, tax time is an opportunity to help them open accounts to receive their refunds electronically, to take their first step to enter the financial mainstream, and begin to save. While non-governmental and financial institutions play key roles, this paper focuses on what can be done by Congress, the IRS and the U.S. Treasury Department to enable more lower-income Americans to convert their refunds into savings.

For the complete document, please see the attached PDF version.