Tax Credit Outreach Campaigns running free tax filing assistance sites can encourage taxpayers to direct part of their tax refund to a savings option to start generating assets and building wealth. While savings can be promoted at any time, tax time is ideal because the tax refund delivers additional money that may not be readily available later on.

Protections to Save

Federal benefit programs are restricted from counting EITC and CTC refunds as income or toward asset limits to determine program eligibility for 12 months after the refund is received. Savings from tax credit refunds that don’t exceed the program’s asset limit can be maintained even after this 12-month period. Most benefit programs allow at least $1,000 in savings. Individual Development Accounts are excluded from asset tests.

Additionally, the FDIC insures all deposits in banks and credit unions up to $250,000. If something happens to a bank, deposited money in a consumer’s account is guarded and guaranteed up to this amount. This is an important point to share with workers, considering that some consumers “save” in ways that lack protection, such as another person’s bank account, cash, or material possessions, leaving their finances vulnerable. Understanding this protection offered through financial institutions may alleviate concerns of unbanked workers, especially those who express distrust of banks.

Savings Accounts

Outreach Campaigns can partner with a local bank or credit union to offer a free or low cost savings account. In this partnership, it is most helpful for the bank to provide the ability to sign up for accounts onsite at free tax filing programs before tax preparation services so that a tax refund can be directly deposited into the account. Outreach Campaigns can also arrange special days for banks to come to an organization and open accounts during other times of the year. It will be important for groups that do this to inform workers in advance of documentation they need to bring to open an account.

Split Refunds

The IRS provides the “split refund” option to provide tax filers receiving a refund through direct- deposit to distribute the refund directly to as many as three different accounts. This option makes it easier for tax filers receiving substantial refunds, such as from the EITC and CTC, to take advantage of savings and asset development opportunities when they file their tax return. Using the split refund option, a filer could directly deposit part of a tax refund into a savings account, part into an Individual Retirement Account, and the remainder into a checking account. Filers can also get the balance of their refund as a paper check mailed by the IRS. To learn more, visit FAQs about Splitting Federal Income Tax Refunds.

Tax Time Savings Bonds

One of the fastest way to encourage savings during tax time is through Tax Time Savings Bonds. This is a good option, particularly for workers who are still hesitant to open a bank account. For more information on promoting savings bonds to build assets during tax time, visit Bonds Make It Easy.

Prize-Linked Savings

Prize-linked savings uses lottery-style drawings to encourage people to save by making it fun. Most prize-linked savings opportunities are structured so that every deposit a participant makes in a savings account during a specific timeframe qualifies as an entry into a raffle or drawing for small prizes ($25 to $100) and grand prizes (more than $100). The more deposits participants make into savings accounts, the greater their chance to win a monetary prize. Since all money deposited is retained by the account owners, everyone is a winner.

Thirty-three states currently allow prize-linked savings accounts. Outreach Campaigns in these states can partner with a credit union to offer these savings incentives.

Individual Development Accounts

Individual Development Accounts (IDAs) are special savings accounts that encourage lower-income workers to save by matching their deposits. Partnerships between nonprofits, government agencies and financial institutions coordinate IDA programs. Participants attend financial education classes and can save money to purchase a home, pay for higher education or job training, or establish a small business. For more information, see Individual Development Accounts.

Roth Individual Retirement Accounts (IRA)

A Roth IRA is a retirement account that accumulates interest and permits withdrawals tax-free, allowing savings for retirement to grow at a faster rate. Many workers who want to save for retirement, homeownership, or other purposes and are unable to get an IDA may find the Roth IRA an effective alternative. For more information, see Roth IRAs.

Saver’s Credit

The Saver’s Tax Credit rewards workers who make contributions to a retirement plan or account by providing a tax credit worth up to 50 percent of a maximum $2,000 contribution. This may be particularly valuable for workers in areas where matched-savings plans, such as IDAs, are not available, or when saving for retirement is a higher priority for a family than the uses that may qualify for matched savings in an IDA. The Saver’s Tax Credit, is referred to in IRS tax forms as the “Credit for Qualified Retirement Savings Contributions.” For more information, see Saver’s Credit.

Homeownership and Car Ownership Programs and Investment Clubs

Homeownership programs are designed to prepare participants to become responsible homeowners.  Many programs include educational classes or workshops and some offer financial assistance that can be used for home inspection or closing costs. To locate a homeownership program in your area, visit the NeighborWorks HomeOwnership Center Directory.

Car ownership programs help link lower-income families to transportation, which is essential to gain and maintain employment. Car ownership programs issue affordable no- or low interest loans. Some programs require participants to complete activities, such as job training or money management classes, before they can receive the loan. To find car ownership programs in your state, visit Working Cars for Working Families.

Investment clubs are groups that learn principles of investing by pooling money together and deciding how to invest it. Rotating Savings and Credit Associations or Lending Circles are a type of investment club. Participants in these groups combine their money so each member has an opportunity to receive an interest-free loan.  For more information on how Lending Circles work, visit Mission Assets Fund.

Outreach Campaigns can arrange for local groups offering homeownership or car ownership programs or investment clubs to share information at organizations or free tax assistance sites or train volunteers to do so. For example, the United Way of Greater Rochester’s CASH (Creating Assets, Savings and Hope) Campaign trained volunteers to serve as “CASH advisors” at their VITA sites. Tax filers completed a financial “wish list” which volunteers used to direct them to appropriate savings programs.

America Saves

America Saves is a nationwide campaign supported by a coalition of nonprofit groups, employers, financial institutions, and government agencies to help individuals and families save and build wealth. It assists families as they pay down debt, build an emergency fund, and save for a home, education, or retirement.

The campaign offers downloadable resources, financial tips, workshops, support through financial planners and clubs, access to affordable bank accounts, tools for VITA sites, and assistance to organizations incorporating America Saves messages and services into their own programs.

Financial Technology

Innovative technologies allow users to better track their finances, spread financial services to areas where they are not readily available, and help increase basic financial knowledge. A 2019 study found that 84% of bank customers had at least one digital interaction with their bank in the past three months. Financial technology can be used to encourage savings and manage money.

Online or mobile banking allows users to view their account balances and keep an up-to-the-minute ledger of transactions. Mint is one of the largest and simplest budgeting applications which can track multiple accounts and credit cards in one place. Clients can monitor spending, create a budget, manage savings, and pay bills.

Venmo is an application that allows one to send money to another person or business for free. Funds can also be transferred to a bank account.

In SavingsQuest, Commonwealth uses technology to turn the experience of saving money into a game. When saving is considered fun, consumers are more likely to save small amounts of money that can add up over time. Game applications can also help establish a habit of saving from an early age. Additional electronic savings games can be found at Practical Money Skills and Financial Entertainment.

Technological innovations are also simplifying access to public benefits. Propel streamlines the SNAP (food stamp) application form and eliminates the need to submit paper documents. Free tax sites can inform clients about this tool to check their eligibility for SNAP and apply.

Additional Resources

• MyMoney.gov
• Better Money Habits: delivers financial facts and tips through videos and interactive tools