New Survey Sheds Light on How Workers Use the EITC
By Lauren Pescatore
A recent survey of consumers conducted by the National Retail Federation offers insight about how workers spend their Earned Income Tax Credit (EITC) refunds.
The study found that nearly half (49.2 percent) of those expecting a refund on their tax return plan to save the money for unexpected emergencies, rather than spend it right away. This is the highest percentage of respondents in the survey’s history to say they plan to save their tax refund. Nearly 35 percent said they plan to pay down debt, while 22.4 percent will use the refund for everyday expenses, such as food or clothing. Very few respondents – only 8.3 percent – planned to “indulge” on a purchase.
Though the survey wasn’t limited to EITC claimants, the results show the value of helping workers keep more of what they’ve earned at tax time. For those living paycheck-to-paycheck, a refund of few hundred dollars in April can mean finally catching up on their electricity bill. For those with a small financial cushion, a tax refund can be put into savings to prepare for unexpected emergencies.
The survey found that those earning more than $50,000 were more likely to use the money for savings (52%) than were those earning less than $50,000 (43.8%). An almost equal number of respondents from both income groups planned to use the money to pay down debt, but far more lower-income earners planned to use their refund for everyday expenses (30.1%) than did those on the higher end of the income scale (17.7%).
Also according to the survey, about 52 percent of respondents plan to file their own taxes this year. More than 20 percent of those earning less than $50,000 plan to use a tax preparation service. Just last week, VITA Awareness Day sought to reach this population and draw attention to Volunteer Income Tax Assistance programs: free tax preparation services for those with incomes less than $54,000.
Many of these lower-income respondents are likely among the 28 million working families who will benefit from the EITC this year, with each receiving an average credit of $2,300. This National Retail Federation survey, and other data on the spending habits of EITC claimants, make an increasingly strong case for the important role tax refunds play in helping workers make ends meet.