Tax refunds shrunk by 17%
Coming off the end of celebrations and splurging is the tax season. Starting from mid February until mid April, it is in full swing with people filing their taxes and looking forward to their returns.
With 2019 being the first year taxes are being filed after the Tax Cuts and Jobs Act was passed by the Trump administration, the numbers chart a story different from 2018.
The average tax refunds in 2018 was over $3000. The IRS shows the average tax refund was $2,640 for the first three weeks of the 2019 tax season, about $500 less than the same time last year.
For the 2018 tax filing season, the IRS anticipated that 70 percent of taxpayers would get a refund. During the first week of tax season, for example, the average federal income tax refund was $1,865 — down 8.4 percent — from the average of $2,035 for the same week in 2018. You can check the tax filing season statistics by year here. Here are these stats at a glance:
- More than 39.74 million individual income tax returns have been received so far, down 4.8 percent from the year ago period.
- The total dollar amount for refunds issued was $61.99 billion, down 38.8 percent from a year ago.
- More than 23.48 million refunds were issued, down 26.5 percent from a year ago.
Understanding impact on collections
According to the Federal Reserve Bank of New York, household debt in America is at an all-time high of $13.51 trillion in the last quarter of 2018. The average U.S. household has an estimated $6,929 in revolving credit card debt.
According to the Tax Policy Center, all income groups are projected to see a reduction in their taxes, on average. With a decrease in the taxes, leading to a decrease in their returns, collections will take a hit. This is because most Americans often pay off debt with their tax refund. This strategy was recorded to be highest among millennials.
During tax season, collections generally get more robust with increasing numbers of one time payments being made by clients to close their debts. Following in at close second, most clients opt for short-term payment plans with higher installments as time for tax refunds draws closer.
However, with the Government Accountability Office pointing out that the number of people to receive refunds would be lower, while the number of filers who owe money would increase, the situation is dire. Usually 75% of people who file taxes, receive returns.
4.6 million fewer people would receive refunds this tax filing season.
Collectors and creditors can no longer seize consumers’ tax refunds to fulfill their debts. The risk is further compounded in the subprime sector with high risk of non-payments. Another 4.6 million filers are likely to owe money who had not had that experience in the past. This makes managing customer experience and improve efficiency in collections even more crucial.
Transforming collections
Traditional methods of collection often plateau after about 50-60 days while following a digitized strategy results in collections coming in as clients take advantage of the flexibility and convenience powered by technology.
Technologies such as AI, ML, and Big Data can help foster an omnichannel approach to collections which is more suited for the modern customer. Moreover, usage of data can help continually improve collections efforts in terms of contact, payment, and treatment strategy. Intelligent recommendations, powered by Dasceq’s 2i™ engine, can help manage and reduce delinquencies leading to better utilization of resources.
At Dasceq, we are transforming collections by propelling the monetization of data with our team of data scientists and domain experts. Our 2i™ platform has features like collections journey, 2i™ personalization, max influencer, and consumer 360 which empower collections team to achieve better results. Feel free to get in touch with us for a quick product demo.