"If You Need Help, I'll Help You, but I'm Not Going to Do It for You." Tax Refunds and the Transition to Adulthood and Financial Independence

Background and Purpose:

The earned income tax credit (EITC) is vital wage supplement for low-income working families with children. Though scholars find that the EITC is an important safety-net to help families “catch-up” on bills and pay down debt, less is known how parents who have adult children living with them access and use the credit. This is a unique time as it is situated within a context where adult children are attempting to figure out their future financial independence, while parents decide how to best support their child and address their own financial needs. The current study explores how a diverse group of women (n=28) who receive the EITC navigate the filing of their taxes and the spending of their tax refunds while they have an adult child (over 18 years old) living with them in addition to their younger children (under 18 years old).

Methods:

Data were collected using in-depth, semi-structured interviews with women who reported receiving the EITC based on the qualifying child requirements. The sample included women who lived alone with their dependent children (n=11), women who lived with dependent children and an adult child (n=9), and women who lived with dependent children and a parent (n=8). The interview explored how household living arrangements, social obligations, and cultural norms shaped how the women spent their EITC. Descriptive and axial coding methods were used to understand when and why the women’s young adult children began to claim themselves on their taxes, along with the conditions under which women used their tax refund to provide support to their adult children. This coding approach helped to address priori hypotheses and understand the unique decision-making process of each interviewee.

Findings:

Analysis reveals that most women have conversations with their adult children about their tax refunds. Mothers include adult children in conversations about spending on household expenses and family activities – despite in some cases mothers not including the adult child on their tax return. Generally, women use less of their tax refund to help their adult children as the child ages. Exceptions to this are high need situations (ie. overdue bills, paying for childcare). The women described expectations for their adult children to work, pay their own bills, and to eventually file their own taxes. This transition of adult children claiming themselves is sometimes ambiguous. The ambiguous nature arises from expectations that children increasingly become more independent - even while living “at home” - coupled with inaccurate knowledge on how the family should file their taxes as compared to tax law.  

Conclusions and Implications:

An increasing number of adult children live with their parents as they work towards “self-sufficiency”. Given EITC-eligibility requirements, many parents may not receive a tax benefit for their adult child residing with them, though parents may continue to financially support their child. Conversely, social norms of independence coupled with complicated tax law can result in families filing inaccurate tax returns and receiving refunds smaller than they are entitled to. Implications for tax policy will be shared.