Thanks to Congress extending the payroll tax cut millions of Americans will continue to receive a fatter paycheck.Â However, a recentÂ NFCC poll revealed that 66% of workers did not realize that their paychecks were larger, in spite of the 2% payroll tax cut having been in place for over a year.
In 2012 the maximum amount of earnings subject to the Social Security tax increased to $110,100, up from $106,800 in 2011. The tax cut will put a significant amount of money back into the hands of consumers, with workers making up to the maximum taxable amount continuing to enjoy extra money in their paychecks.Â
For example, for those earning the maximum, the 2% reduction translates into a tax savings of more than $2200 annually. Even workers making approximately half of that amount, $50,000, will realize an additional $1,000 in their paychecks over the course of the year, money they can put to good use, but only if theyâ€™re aware it is there.
Regardless of how large or small the increase may be consumers must be aware of it in order to make responsible decisions regarding the use of this windfall money. The poll results underscore the need for increased financial literacy among working Americans.
Employers have a unique opportunity to exercise corporate responsibility by offering financial education to their employees, starting with a solid understanding of how the payroll tax cut monies can be put to good use. The NFCC challenges businesses to act upon this opportunity, noting that it offers advantages for not only the employee, but also the employer. Benefits that employers can realize by providing financial education include the following:Â
- Positions the employer as a trusted resource for financial information.
- Demonstrates that the employer is concerned about the financial well-being of the employee.
- Creates a more financially stable employee, one who is not distracted by financial concerns, collection calls while at work, or continually requesting advances from their paycheck.
- Provides an opportunity to educate the employee on the benefits of contributing to the employee retirement plan, something they may not have previously been able to do.
- Provides a platform for emphasizing the importance of saving, as using this money to begin or add to a savings account could provide a safety net for future financial emergencies.
Debt is often the main stumbling block standing between an employee and financial stability.Â A financial education workshop is the ideal place to illustrate the meaningful impact that putting the payroll tax cut money toward debt repayment can have on overall financial health.
With hundreds of Certified Educators, NFCC Member Agencies are well-equipped to provide financial education at the worksite.Â To schedule a workshop with the agency closest to you, dial (800) 388-2227, or go online to www.DebtAdvice.org.Â In some areas, educators are available to provide classes in both English and Spanish.Â
The actual results of the NFCC poll were as follows:
With the 2011 2% point payroll tax cut, last year I
Saved most of it = 3%
Caught up on past-due bills = 8%
Increased my retirement contributions = 4%
Treated myself to something special = 1%
Used it to pay off debt = 18%
Didn’t realize my paycheck was larger = 66%
Note: The NFCC’s January Financial Literacy Opinion Index was conducted via the homepage of the NFCCÂ website (www.DebtAdvice.org) from January 1 – 31, 2012 and was answered by 1,797 individuals.
Gail Cunningham is Vice President of Membership & Public Relations with the NFCC.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.