Tax Refund Splitting Can Help Families Save

From Berkshire County to Barnstable, one thing binds Massachusetts residents together: taxes. Tax time happens predictably every year, and a tax refund is often the largest single payment of money a household receives all year. While much of that refund may be needed for immediate needs like bills and household expenses, Commonwealth research shows that setting aside even a portion of that refund can help cover unexpected expenses later in the year. Allowing tax filers who use direct deposit to split their refunds into multiple accounts gives them an easy way to take advantage of this moment to save for the future.  

Commonwealth has a long history of addressing the nation’s savings crisis and building innovative solutions to address financial security at tax time. In the early 2000s, we advocated to allow federal tax refunds to be split into three accounts through Form 8888 which is used by thousands of taxpayers every year.  

Massachusetts has an opportunity to adopt a similar policy for taxpayers thanks to two bills which give state tax filers the option to split their tax refunds into multiple accounts.  

We fully support S. 1518 (sponsored by Senator Eileen M. Donoghue, representing First Middlesex District) and H.3622 (sponsored by Representative Marjorie C. Decker of Cambridge), which are currently under consideration in the state legislature. Commonwealth’s Executive Director, Tim Flacke recently testified before the Joint Committee on Revenue in support of this important initiative. In addition to highlighting the flexibility the bills provide for tax filers to use their refund for multiple purposes, he also identified tax time as a moment that allows taxpayers to take action. 

“Refund-splitting gives filers the power to commit to their intention to save at the moment of tax filing, rather than having to wait until the refund arrives in their account – at which point the decision to save may be more difficult to make.” 

In 2016, the Massachusetts Department of Revenue issued over 2.6 million refunds worth more than $1.4 billion. According to research by Prosperity Now, 30% of Massachusetts households did not have enough savings to get them through an emergency. Splitting a tax refund could provide critical funds to begin building savings. As Flacke testified, “A basic savings safety net is a bedrock of financial security.” 

Eight states allow filers to split their state income tax refund between 2 to 5 accounts. S. 1518 and H. 3622 would allow Massachusetts to join these national trailblazers and promote the tax moment as a unique opportunity to build financial security. In addition to strengthening savings, this legislation would provide an annual opportunity to fund a children’s savings account (CSA) which are gaining momentum across the state and allow filers to take advantage of Massachusetts' new tax deduction for 529 contributions.  

This is a simple step we can take towards major impact for Massachusetts families. The flexibility to split the state tax refund allows filers to meet immediate financial needs while also preparing for the future through a savings. Whether filers choose to start an emergency fund, build up savings for a home, fund an IRA, or start their child on a path to college by contributing to a CSA, the opportunity to split the refund should be available for all Massachusetts tax filers.  

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