Congress Introduces Legislation to Help Families Save for Emergencies at Tax Time
For Immediate Release
Contact: Kristin Lawton, 202.207.0137
Prosperity Now is pleased to announce today’s introduction of a critical savings bill in both the Senate and House that can help working families make the most of their tax refund. Through the leadership of Senators Cory Booker (D-NJ), Tom Cotton (R-AR), Doug Jones (D-AL) and Todd Young (R-IN); and Representative Bonnie Watson Coleman (D-NJ-12) and French Hill (R-AR-2), low- and moderate-income households could get additional support to save for emergencies with their annual tax refund though the Refund to Rainy Day Savings Act.
Millions of Americans are getting by with little or no emergency savings to cover life’s financial emergencies. Forty percent of American households are liquid asset poor, meaning that the loss of a job, a medical emergency or a death in the family can prevent them from living at the poverty level for three months. Many have little to no savings for the emergencies their families inevitably face. According to the Federal Reserve, two out of every five Americans don't have $400 to deal with financial shocks without selling something or borrowing money.
Tax time is a key moment to help families build their financial resilience. Tax refunds can make up 30 percent of a household’s total income. A big portion of those refunds come from the EITC (Earned Income Tax Credit) which helps keep about 5.8 million people out of poverty. Working families use their refunds in a variety of ways: to save, pay down debt and invest in long-term assets. But they only come once a year. Families need more support in saving for emergencies throughout the year.
This bill would help working families better utilize their tax refund and ensure that they have emergency savings later in the year for unanticipated expenses. Under this proposal, tax filers receiving a direct deposit tax refund will be allowed to defer a portion of their refund by opting into the program at tax time. These savings will accumulate interest in a Treasury account before being transferred directly into the tax filer’s account six months later.
The idea behind the Refund to Rainy Day Savings Act, based on Prosperity Now’s Rainy Day EITC proposal, is gaining traction. As Prosperity Now highlighted in the Washington Post last August, the Rainy Day Refund Act—reintroduced in Washington, DC early this year by Councilmember Brianne Nadeau—also follows a tax time approach to rainy day savings by allowing eligible taxpayers to defer a portion of their DC EITC for six months and get a savings match. Strengthening the EITC will give working families another option to save for their short- and long-term needs.
Other savings innovations are also being proposed. In the Senate, the Refund to Rainy Day Savings Act was introduced as a part of a package of savings bills—including the Strengthening Financial Security Through Short-Term Savings Plans Act—focused on helping working families save at key touchpoints in their lives such as tax time and the workplace. This bill would make it easier for employers to offer rainy day savings accounts to their workers with the sole purpose of helping them save for unexpected emergencies.
“Nearly half of all Americans cannot come up with $400 to cover an emergency such as a job loss or an unexpected medical bill without borrowing or selling something,” said Andrea Levere, President of Prosperity Now, “By leveraging key touchpoints in the lives of working families, such as tax time and the workplace, this package of bills represents a critical step forward to help millions of families save for emergencies as well as for a more financially secure future.”
Prosperity Now believes that everyone deserves a chance to prosper. Since 1979, we have helped make it possible for millions of people, especially people of color and those of limited incomes, to achieve financial security, stability and, ultimately, prosperity. We offer a unique combination of scalable practical solutions, in-depth research and proven policy solutions, all aimed at building wealth for those who need it most.