Thanks to Congress extending the payroll tax cut, millions of Americans will continue to receive a fatter paycheck. However, a recent National Foundation for Credit Counseling (NFCC) poll revealed that 66 percent of workers did not realize that their paychecks were larger, in spite of the two percent payroll tax cut having been in place for over a year.
The tax cut can put a significant amount of money back into the hands of consumers, with workers making up to the cap of $106,800 continuing to enjoy the extra money in their paychecks. For those earning the maximum, the two percent reduction translates into a tax savings of $2,136. 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 they’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,” said Gail Cunningham, spokesperson for the NFCC.
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:
• 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,” continued Cunningham. “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 a number of Certified Educators, The Village Financial Resource Center is well-equipped to provide financial education at the worksite. To schedule a workshop with The Village, dial (800) 450-4019.
The actual results of the NFCC poll were as follows:
With the 2011 two percentage 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%