Refund Splitting

How it works:

• Beginning in Tax Year 2006, the IRS will allow tax filers to split their refunds among several accounts to encourage people to deposit some of their refund into savings
• This offers a means for filers to save some of their refund through direct deposit
• It encourages financial institutions to offer new, innovative products for low-wealth and unbanked consumers and for free tax prep campaigns to partner with them in new ways
• It creates a new opportunity for tax sites to open a conversation about asset building options with customers

What works well:

Prior to 2006, pilots in Tulsa and New York City tried refund splitting at free tax prep sites, and H&R Block tried it at offices around the country. Many customers were interested in opening savings accounts for some or all of their refund. Lessons learned about best practices included:

• Introduce the idea while customers waiteto have their taxes done, but don’t ask customers to enroll until AFTER they know their refund
• Offer simple savings accounts that are easy to explain
• Have a partner bank on-site to open accounts
• Match savings or offer incentives or a bonus to increase the likelihood that people will save (e.g. a $25 dollar matching deposit by the bank where an account is opened can significantly increase the likelihood that people will open and maintain a savings account)

New ideas for 2007:

• Offer tax site customers the chance to purchase U.S. Savings Bonds with all or part of their refund
• Partner with Western Union so that tax site customers can direct deposit their refund quickly to an account and avoid check cashing fees
• Use new SavingsPoint software that works with the IRS TaxWise program so that customers can open savings accounts on-line
• Offer direct deposit to stored value cards for quick and safe refunds.

What you can do:

• Talk with the financial institutions in your area to alert them to this opportunity
• Help them to develop suitable products that could link your tax site customers to asset building, such as the Smart CD at Franklin Savings
• Institute a statewide campaign to give visibility to a simple menu of products that meet high standards such as:

• Low-cost savings accounts
• Smart CDs
• Credit Builder CDs
• 529 college savings accounts
• IDAs

• Get your state’s Banking Association, Credit Unions, State Treasurer involved

The Aspen Institute Community Strategies Group (CSG) | One Dupont Circle, NW | Suite 700 | Washington, DC 20036