Each year, 150,000 New Yorkers get their taxes prepared for free at Volunteer Income Tax Assistance (VITA) sites. However, an estimated ﬁve million New Yorkers qualify for this service. More than half of those who qualify for the free service end up spending about $250 for the services of a paid tax preparer instead.
Furthermore, about 20% of households eligible to receive the Earned Income Tax Credit fail to claim it while completing their taxes, missing out on an average of $2,445 in tax credits. VITA sites save ﬁlers money on the front end, as well as increase returns on the back end. The sites, however, are highly underutilized.
In partnership with the Robin Hood Foundation, we worked with an Urban Upbound VITA site in Long Island City, New York, to increase the number of VITA ﬁlers through a friend and family referral program.
Behavioral Diagnosis and Key Insights
We wanted to increase the number of current VITA ﬁlers that recommend the site to friends and family and increase the number of referred households that actually come to the VITA site to ﬁle their taxes. Through conversations with staff, observations of the VITA site process, and insights from existing behavioral research, we identiﬁed the following barriers to achieving the key behaviors:
- Filers don’t tell friends and family about VITA’s services. VITA referrals may not naturally come up in conversation between friends and People often forget. Even satisﬁed ﬁlers may only share the information with friends and family who explicitly ask them about ﬁling taxes. In addition, there is no personal beneﬁt for making a referral.
- Filers may not refer, and the referred may not go, if they aren’t sure if they are eligible for the free
- Friends and family decide not to ﬁle at The referred may not go to VITA because they have already ﬁled their taxes or because they want to stick with how they always do their taxes. The referred may not want to go because they don’t trust VITA sites, believing it to be an inferior service because it’s free. Finally, the referred may not want to go because they want to speed up the refund process, so they use the services of a paid preparer in order to get an anticipation loan.
To increase referrals at the Urban Upbound LIC VITA site, we conducted a referral lottery. Filers were given the opportunity to make any referrals immediately after they had their taxes prepared but before they left the site.
Each referral card had a unique referral code and the ﬁlers’ name and phone number. Filers could then take a photo of the referral card and text the photo to up to ten people. The ﬁler would then receive a scratch ticket for each person they texted to give to their friend or family. If the scratch ticket is a winning scratch card, the referrer and the referred split the earnings equally.
With a total reward value of $5,000, it was important to establish that the random reward incentive was worth the cost. Additionally, we had conflicting hypotheses about the tangibility of the ticket. It is theoretically easier to refer more people if you can do it entirely digitally.
However, there is an additional power around tangibility and concreteness (as well as heightened curiosity and potential regret) to motivate the referred to come to the site if they have the physical ticket. Therefore, we had three different referral cards that we randomly distributed during intake.
- Simple Referral: A simple referral with no mention of any scratch
- Promised Ticket: A promised scratch ticket that the referred could collect at the site.
- Physical Ticket: A physical scratch ticket that the referrer received to give to the referred to bring to the
Filers were gently encouraged to take a picture of the referral card and text it while still at the VITA site. We then tracked how many photo texts were sent from each card and how many new ﬁlers came in with each unique referral code. We compared these metrics across all three conditions to determine the most effective way to increase the number of people referred and the number of referred people who act on that referral to get their taxes done.
During the tax season, we asked about 2,590 ﬁlers if they wanted to make a referral and 17% of those ﬁlers texted at least one person a photo of their referral card.
Those who texted sent the image to 4.2 people, on average. In this pilot, the referral program resulted in 1,845 text messages to tell people about the LIC VITA site.
However, only about 2% of those who received the text messages came in to ﬁle their taxes at the site. So while the referral program was effective at making referrals, it was less effective at encouraging follow-through by the referred. However, we did ﬁnd meaningful differences between the referral cards:
- The scratch ticket (promised or physical) increased the number of people who made a referral by 60% (N=2590; p-value<0.01). However, once someone decided to make at least one referral, the number of referrals made did not vary across conditions.
- Those who received the tangible ticket were almost ﬁve times more likely to come to the VITA site to have their taxes prepared when compared to the simple referral. Less than 3% of ﬁlers who made a simple referral had a referrer come in, compared to over 10% of the ﬁlers who received a tangible ticket. This experiment demonstrates the real value of concreteness and tangibility to motivate behavior.
In this pilot, 1,845 people received a text message about the VITA site, but it ultimately only brought in 31 new ﬁlers. However, 40% of the new ﬁlers claimed the earned income tax credit (EITC), which totaled an additional $15,673 in tax credits to these families. If the tangible lottery ticket were to be scaled across New York VITA sites, we would expect this to lead to 116,850 text message referrals, 3,391 more ﬁlers, and an additional $1.77 million in tax credits.
Scaling the tangible lottery ticket across New York should to lead to an additional $1.77 million in claimed tax credits.