Tax Time Kickoff Series: Part II- How Can I Make the Most of My Tax Refund?

As we kick off tax season, the Center on Budget and Policy Priorities’ Get It Back Campaign and the Financial Clinic have teamed up to help you sort through what tax reform might mean for your tax refund, and what you can do to make the most out of tax time. This is part two of a three-part series.

 

Now that you have an idea of tax law changes that may influence your tax return it is time to think about how you can maximize your refund. Before you receive your refund or even file your taxes, you can make a plan for the additional income. Having a plan can keep you on track so that your tax refund helps get you closer to your financial goals. Additionally, by planning ahead, you can bring the right materials to your tax appointment and ask questions to help ensure everything goes smoothly.

Here are some suggestions to help you maximize your refund:

  • Plan to split your tax refund
    • Bring your checking AND savings routing and account numbers to your tax preparer (we recommend checking out a VITA site!). Tell your preparer you want to split your refund using Form 8888. This allows you to save a portion, and keep a portion for spending in your checking account. Decide what percentage of your refund you want to save ahead of time. In 2018, 1 in 5 VITA site customers surveyed at the Financial Clinic planned to save 50 percent of their tax refund.
  • Pledge to save part of your refund
    • Through America Saves, you can get a text message reminder about your pledge to save. This can be one-time savings or monthly savings.
  • Save for future educational expenses
    • Using tax Form 8888, you can put part of your federal return into a college savings account by listing the routing and account number for the savings account on the form.
    • In Arkansas, California, Hawaii, Maryland, Missouri, Oregon, Pennsylvania, Utah, Virginia, and New York, you have the option to split your state refund and place part of it into a 529 account for your dependent’s future educational expenses.
    • In Colorado, Delaware, Ohio, and Illinois you also have options to deposit state refunds directly into a 529 account, but not the option to split your refund.
  • Purchase savings bonds
    • Your tax return is one of the easiest ways to get a U.S. Savings Bond, and bond rates are higher than they’ve ever been. Ask your tax preparer about putting a portion of your refund towards a savings bond. You’ll use the same federal form, Form 8888  purchase savings bonds.
  • Participate in a savings program
    • SaverLife is a free online program where you can earn prizes for saving. SaveYourRefund is another program where you can enter cash prize drawings when you save a portion of your refund. Ask if there are any local savings programs in your community.

Making the most out of your refund once you receive it.

You’ve made your plan, filed your taxes, saved a portion of your refund, and received your refund. Now what? The next step is deciding what to do with the remainder of your refund.

Here are some suggestions from the Financial Clinic’s  coaches and customers:

  • Pay bills
    • Many customers like to use their refunds to pay bills in advance– like car insurance and rent– to help reduce stress.
  • Pay off debt
    • Using your refund to pay off your debt can make it easier to save throughout the year.
  • Treat Yourself!
    • Allow space to treat yourself to something small with your refund. This will make it less likely that you will be tempted to dip into what you plan to keep saved.

We hope this helps you get started planning for tax time! Be sure to check out our first blog in this series, and check back later in the week for “Part III: How Can I Plan for Changes to My Refund?”.

Do you provide financial coaching to others? Check out our Tax Time Mini-Toolkit to help you have tax planning conversations with the customers you serve

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Be sure to check out other helpful blog posts from both the Get It Back Campaign and the Financial Clinic.

Part I: What Tax Reform Changes Should I Know About?
Part III: How Can I Plan for Changes to My Refund?

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This blog series is co-authored by The Get It Back Campaign and The Financial Clinic. Be sure to check out other helpful blog posts from The Get It Back Campaign and the Financial Clinic.

The Get It Back Campaign helps eligible workers claim tax credits and use free tax filing assistance to maximize tax time.

The Financial Clinic builds working poor people’s financial security through direct services, partnerships that embed financial security practices into nonprofits nationwide, and policy campaigns in support of working families.