Applying income tax refunds to paying down debt is about as popular as paying income taxes themselves. Nevertheless, the process helps consumers get out of debt and represents an important component of a successful tax season debt collection strategy for U.S. businesses.
The concept of federal income tax was introduced with the Revenue Act of 1861 to help fund the Civil War, but was later deemed unconstitutional because of technicalities. There were subsequent failed attempts, but income tax finally became the law of the land in 1913 after the ratification of the 16th Amendment to legalize it and the passage of the Underwood Tariff Act to collect it.
The 1913 filing date for individuals was March 1, but it was changed to March 15 in 1918 and to April 15 in 1955. “Tax Day” — the colloquial name of the deadline — remains there today, though the IRS can 
extend it a day or two if April 15 falls on a weekend as it did in 2018.
Tax Day for filing 2018 Individual returns is April 15, 2019, but the IRS will not disclose the date (usually late January) that it begins accepting electronic tax returns until sometime in December.
For now, any business holding sizeable consumer debt should consider developing a tax season debt collection strategy, whether the effort is conducted in-house or with the help of a reputable collection agency.
Never Too Early to Start Planning
The 2018 edition of the National Retail Federation’s annual tax refund survey includes aggregations of relevant consumer responses. For example, 65 percent anticipate receiving refunds, but of those, only 35 percent plan on using refunds to pay down debt. The survey also shows that roughly 85 percent file returns before April 1, so it is imperative for companies to engage indebted consumers early enough in the season to establish repayment plans before consumers spend their tax refunds elsewhere. All things considered, it becomes a question of “who they will pay first?” versus “do they want to pay?”
In this regard, experienced debt collection agencies understand the importance of timing and modification as well as preparedness and flexibility in launching and maintaining a successful tax season debt collection strategy.
Preparedness
The launch of a successful tax season debt collection strategy begins with the consideration of the latest consumer trends and macroeconomic conditions as well as preparedness in terms of staffing, training, compliance, data security, technology and more.
In recent years, for example, consumers have incurred rising auto, student and credit card debt that could adversely affect their ability to keep up with those payments as well as others such as healthcare and or utilities.
Furthermore, low employment percentages could translate to companies having difficulty finding, hiring and training staff members early enough to launch an effective in-house tax season debt collection strategy. Experienced agencies are more adept at anticipating market changes and preparing for tax season by hiring the right people and properly training them in compliance and negotiations.
Operations directors at agencies also stay ahead of the curve by properly managing their collections software, strategic predictive analytics, workflow automation, telephony hardware, automated dialing software, monitoring practices, reporting, auditing and more for clients throughout the year, and especially during tax season.
Timing and Modification
The default approach to the timing of a tax season debt collection strategy entails continuous consumer outreach and collector briefings in quarter four of the preceding calendar year, followed by incentivize repayment discussions with consumers in January, February, March and April.
The fall strategy may instruct collection agents to discuss applying tax refunds only if debtors introduce the subject during phone conversations. In November, for example, a collector might acknowledge that applying a tax refund expected in March is a great idea, but point out the importance of developing an immediate repayment plan to prevent that individual from falling into greater debt.
This approach is maintained through the early part of the tax season until debtors have actually filed returns and know their refund amounts. At this point, the dialogue should escalate to the discussion of signed repayment plans that commence on the estimated dates that consumers will receive their refunds.
These efforts can be augmented by a strategy one campaign (demand letters) in March and April that advises consumers to apply their tax refund to the repayment of debt.
Flexibility
This fourth strategic asset begins with the ability to offer versatile payment options and accept them via mail service or phone. Agencies should also honor all forms of payment (cash, check, credit/debit card, and ACH) while maintaining the proper procedures to secure, authorize, monitor and process transactions.
Operations leaders should have the awareness to make real-time adjustments to consumer segments or individual accounts with changes in economic or consumer trends, or after analyzing the results of consumer satisfaction surveys.
Next, call centers should be able to accommodate increased call volume during tax season with the proper ratios of collectors to accounts, and supervisors to collectors.
Finally, agencies should be willing to accept settlements during tax season when consumers are committed to paying down their debt. Settlement strategies are typically formed with client approval.
The Foundation of a Tax Season Debt Collection Strategy
Best-in-class agencies maintain uncompromising standards of excellence during tax season and beyond with a foundation rooted in compliance and quality assurance, certification, data security, and collections technology in order to offer clients a favorable return on investment, brand protection and customer retention.
Contact us today to discuss how we can create an individualized collections campaign for your organization that begins this fall with a sound tax season debt collection strategy.
