Getting people to save something from their tax refund, the largest check they get all year

Background

Tax-filing season can be a time of great stress, but it can also be one of the best opportunities all year for individuals to build up their short-term savings. In 2016, 73% of tax filers received a tax refund, averaging $2,857. This can often be the largest single deposit many receive all year.

In 2006, the IRS introduced the Form 8888, which enables tax filers to easily split their tax refund into multiple accounts (up to three), thus making it possible for recipients to directly set aside a portion of their refund into a savings account.

Through the Robin Hood Foundation, we partnered with Ariva to run a field experiment testing different interventions, with the goal of increasing savings rates through Form 8888 and increasing attendance at a tax preparation site.

Ariva operates nine tax sites in the Bronx and one tax site in Manhattan, serving over 10,000 tax filers each year. Their main location is in the Highbridge area of the Bronx and serves over 4,000 tax filers each year. Over 40% of the Highbridge residents live below the poverty line.

Key Insights

To understand the environment where filers are taking actions, we initiated site visits before tax season began. We conducted two full days of observation, along with ten hours of qualitative interviews with key staff members, preparers, greeters, and other volunteers.

Consolidating themes from the conversations led to these key insights on the tax preparation process:

1. There was a limited mention of saving. Although Ariva played a video in their waiting room subtly highlighting the Form 8888 and the importance of saving, few greeters, intake persons, or preparers actively discussed saving or the Form 8888 with the client. In addition, none of the forms explicitly asked filers if they wanted to save, and if so, how much they wanted to save.

2. Their base of volunteers is inconsistent (seasonal worker problems). Since most preparers at a VITA site are seasonal volunteers, consistency with some processes such as where to place the deposit form, how to introduce the Form 8888, and how to assist clients in opening savings accounts can be difficult.

Experiment

Given these barriers, we focused our two experiments on deliberately asking the clients to make an active choice about how much they wanted to save out of their tax refund.

For the first experiment we added environmental cues to the filing experience, to test if making savings more salient could encourage usage of the Form 8888. We named this experiment the “Environmental Cues Experiment.” We created two conditions. In the experimental condition, Ariva employees would:

1. Hand out “checklist” flyers outlining each required item, including a savings account routing and checking account number.

2. Put up “desk tents” on each of the preparer’s desks, reminding filers to save part of their taxes and reminding preparers to ask clients to save part of their taxes through the Form 8888.

Those in the control condition experienced the pre-existing Ariva experience, without checklists or desk tents.

Our second experiment, our “Deposit Form Experiment” focused on modifying the existing direct deposit form to increase savings. We were interested in testing how recommendations, social proof and nudge disclosures would influence decision-making about the amounts someone plans to save. We changed the deposit form, asking filers to select, from a list of checkboxes, what percentage of their refund they wanted to save (0%, 10%, 20%, 25% 30%, 40%). In total, we had six conditions:

1. Pre-existing Ariva forms from 2016

2. Deposit form with check boxes only (our control)

3. Deposit form with check boxes and 0% noted as “highly not recommended”

4. Deposit form with check boxes and 40% noted as “highly recommended”

5. Deposit form with check boxes and 25% noted as “most people check this option”

6. Deposit form with check boxes and 25% noted as “most people check this option” and a nudge disclosure explaining to clients that their form was behaviorally designed to help them save

Results

We first analyzed the results for our “Environmental Cues” experiment. At the end of the tax season, 54 out of 3,702 (1.46%) tax filers split part of their tax refund through the Form 8888.

Our environmental cues had a marginally statistical significant effect (p=.076), increasing split rates by 26% from 1.3% in the control condition to 1.6% in the environmental cues condition. In other words, clients who came in on our “environment days” were 1.8 times more likely to split their tax refund than those who came in on our control days.

In general, split rates were low. And yet, in a pre-post analysis, we almost doubled Ariva’s split rates year over year from 0.75% in 2015 to 1.46% in 2016 (p<.001). These experiments highlight just how difficult it is to get tax filers to use the Form 8888. One large hurdle we found was that many of the preparers didn’t know about the Form 8888 and if they did, they were hesitant to add another step in the process. We then analyzed the results for our “Deposit Form Experiment.” Unfortunately, we lost a number of deposit forms in the collection process and were not able to detect differences in actual split rates by condition. However, we were able to detect strong differences in behavioral intentions and what filers reported to wanting to save.

We collected 2,456 deposit forms. Roughly 45% of these forms were left blank. Of the forms that were answered, 24% wanted to save part of their tax refund. Our analysis showed that compared to the control (our checkboxes-only condition), all of our experimental conditions moved behavioral intentions towards the implicitly recommended option.

• In our “0% not recommended” condition 71% of filers checked 0% (vs. versus 78% in the control (p=.063).

• In our “40% highly recommended” condition 9% of filers checked 40% versus 5% in the control (p=.042).

• In our “25% most people clicked this option” condition 9% of filers checked 25% versus 3% in the control (p=.001).

• In our “25% most people click this option + nudge disclosure” condition 7% of filers checked 25% versus 3% in the control (p=.015).

• Interestingly, there were no differences between the “25% most people clicked this option” conditions and “25% most people clicked this option + nudge disclosure” conditions.

We are working with New York City’s Department of Consumer Affairs (DCA) to share our learnings broadly to all VITA sites in New York City. We have two webinars scheduled to help VITA sites implement these tactics for the 2018 tax season.