The Impact of Tax Refund Delays on the Experience of Hardships and Incidence of Debt in Low- and Moderate-Income Households
*Names in bold indicate Presenter
Data and Method: This paper leverages a unique dataset combining administrative income and tax records with survey data on LMI tax filers between 2017 and 2018. These data are very well-suited to explore the consequences of tax refund delays on the financial well-being of LMI recipients because administrative records include precise measures of incomes, EITC and ACTC amounts, and the dates of tax-filing. The survey data—collected immediately after tax filing and six months later—contain information on sociodemographic characteristics and key study outcomes, which includes self-reported incidence of hardships and unsecured debt.
To examine how PATH Act rules affected the incidence of hardships and debt levels among LMI tax filers, we use data for 2017 and conduct a regression discontinuity analysis comparing the changes in outcomes for EITC/ACTC recipients who filed taxes very early in the tax season and those who completed taxes immediately after February 15th. Furthermore, limiting the sample to LMI households that appeared in both 2017 and 2018, we compare the dates of tax-filing to explore the extent to which these households have adjusted their tax-filing behaviors one year after the new policy went into effect.
Preliminary Findings: In 2017, households receiving EITCs tended to file their taxes earlier: 38 percent of EITC recipients and 25 percent of non-EITC recipients filed their taxes before February 8th. Among EITC recipients (N=1,443), preliminary findings show that the changes in debt incidence remained largely similar over time between the early and late filers, although early filers showed increases in the amount of credit card debt, student loans, loans from friends/family, and outstanding bills during the six-month period, relative to later filers. Findings for the changes in hardships are mixed.
Significance: Given the greater risks of financial volatility among EITC recipients, this research provides timely evidence on the potential repercussions of recent changes in tax laws on financial well-being of lower-income households.