The American Bankers Association stressed the importance of low-income workers filing a tax return—even if their incomes are too low to trigger any federal tax liability—in order to claim the Earned Income Tax Credit (EITC). Depending on a recipient’s income, marital status and number of children, the EITC can result in a refund of up to $6,269 to help them achieve financial goals.
ABA also offers the following tips:
1.Save for emergencies. Open or add to a high-yield savings account that serves as an “emergency fund.” Ideally, it should hold about three-to-six months of living expenses in case of sudden financial hardships like losing your job or having to replace your car.
2. Pay off debt. Pay down existing balances either by chipping away at loans with the highest interest rates or eliminating smaller debt first.
3. Save for retirement or your child’s education. Open or increase contributions to a tax-deferred savings plan like a 401(k) or an IRA. Your bank can help set up an IRA, while a 401(k) is employer-sponsored. Or invest in a tax-advantaged 529 education savings plan to ensure school expenses will be covered when your child reaches college age.
4. Pay down your mortgage. Make an extra mortgage payment each year to save money on interest while reducing the term of your loan. Be sure to inform your lender that your extra payments should be applied to principal, not interest.
5. Invest in your current home. Use your refund to invest in home improvements that will pay you back in the long run by increasing the value of your home. This can include small, cost-effective upgrades like energy-efficient appliances that will pay off in both the short and long term – and with future tax credits. If you have more substantial renovations in mind, your bank can help with a home equity line of credit.
6. Donate to charity. The benefit is two-fold: Giving to charity will make a difference in your community, and you can also claim the tax deduction.