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Creating an Income Spike, Part I: Tax Time

by Julie Siwicki of the Financial Access Initiative

It was hard for many of the USFD households  to know what their income would be from month to month. Some dealt with the uncertainty by relying on predictable income spikes throughout the year. USFD collected data on two such spikes: tax refunds and credits and savings group payouts.

Tax time holds a great deal of importance for households who qualify for refunds and credits. Researchers like Kathryn Edin, for example, continue to develop our understanding  of the value that families attach to the Earned Income Tax Credit. Sixty-eight percent of USFD’s sample received some type of income tax refund or credit during tax time, shown in chart 1.27.

 
 

Tax refunds and credits can be substantial compared to households’ average monthly income. Chart 6.1 illustrates that the largest portion of USFD households with tax income received a payment amount more than double what they typically brought in each month. And refunds and credits coming to USFD’s lowest income households totaled nearly 3 times their usual monthly income, as shown in chart 6.2. Funds received at tax time contribute to what can be a very helpful kind of income volatility. (See chart 2.7 here.)

Chart 6.3 breaks down the relative size of our sample’s tax income by region. The results indicate that New Yorkers experienced the largest income bump and Californians the smallest. There are likely a number of reasons for this, including the fact that households recruited in our New York site tend to be poorer than households in other regions. We’re continuing to look at how tax income varies between households.

We also asked households how they filed their taxes, showing the data in chart 6.4. The bulk of people filing on their own were in our highest income group, while most of those having a contact “do it for free” were in our lowest income bracket, below the poverty line.

USFD collected information on a wide spectrum of tax-related experiences: from when households chose to file, to how much they expected to get back, to how they ultimately spent the refunds and credits they received. These charts are just the start of a more comprehensive look we’ll take into the financial diaries of tax time.

 

This is part of a series explaining initial findings from the US Financial Diaries. The project is lead by principal investigators Jonathan Morduch (NYU) and Rachel Schneider (CFSI).  Julie Siwicki was a field researcher with the project and is now a research associate. The views expressed therein are those of the author, and not necessarily of the USFD project or its funders.