|Volume 13, Issue 1, 2013||Federal Reserve Bank of Dallas|
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Savings Programs Associated with VITA
There are thousands of Volunteer Income Tax Assistance (VITA) sites across the country and more than 250 in Texas. Located at libraries, community colleges, churches and community-based organizations, these sites pop up during tax season in areas accessible to low- and moderate-income (LMI) workers.
VITA sites can connect LMI families not just to the Earned Income Tax Credit (EITC) but to other tax credits they may be eligible for, such as the Child Tax Credit, education tax credits and the Credit for the Elderly or the Disabled.
In addition to basic tax filing, many VITA sites run by local nonprofits offer financial or credit counseling and services that include opening savings accounts, purchasing savings bonds with tax refunds and creating individual development accounts (IDAs).
In 2012, more than 114,000 Texans filed their taxes through VITA sites and received $85 million in EITC refunds. Of those receiving the EITC, over 1,800 participated in savings programs offered through certain VITA sites, choosing to place a portion of their EITC funds in Series I Savings Bonds, stored-value cards, IDAs or basic savings accounts. For these households, VITA sites can be a gateway to the financial mainstream.
Given that VITA sites are free of charge and can provide substantial financial benefit, it would seem that they would be very popular with LMI families. However, approximately 63 percent of Texans who receive the EITC file through paid preparers. The use of VITA sites by EITC recipients differs by county but averages just over 2 percent across Texas (Figure 1).
The major misperception is that getting the refund is faster at a paid preparer. The lack of knowledge about VITA locations or services can be another contributing factor to these low take-up rates. Most VITA sites file electronically, so clients can receive their refunds just as fast as with a paid preparer. Increasing awareness of services and savings products offered may lead to increased use of these sites and, therefore, higher levels of asset-building for LMI workers.
To find free tax-preparation and other asset-building programs in Texas, visit the RAISE Texas resources web page.
The following are the largest active savings projects in Texas this tax season:
“We think both up-front and delayed savings incentives are important, serving different purposes,” said Laura Rosen, Opportunity Texas coordinator. She explained how the savings incentives are structured in the tax-time savings projects: “The savings match delivered at the end of the year encourages participants to grow their savings throughout the year, while the gift card given for sign-up boosts filer participation. It’s easier for people to decide to save for the future when they have an incentive that allows them to also meet their basic needs today.”
For more information, see the CPPP's "Savings Soars: OpportunityTexas' Tax-Time Savings Project Triples Impact from Last Year" and "Dollar for Dollar: Incentives and Innovations to Boost Savings in Texas".
The presentation of the Opportunity Texas-sponsored webinar on strategies and best practices to encourage the growth of VITA client savings is available online at www.opportunitytexas.org.
In addition to the Texas programs, the Doorways to Dreams Fund has created a national SaveYourRefund sweepstakes through which participants may win $250 or a grand prize of $25,000. Eligibility requirements are created with asset-building goals in mind: Filers can enter only when they save at least $50 of their refund using IRS Form 8888, which directs portions of tax refunds into either direct-deposit or savings bond purchases. More information on the program and how to enter can be found at www.saveyourrefund.com.
—Wenhua Di and Emily Ryder
e-Perspectives, Volume 13, Issue 1, 2013