Wednesday, April 10, 2013

Americans and their Savings: Post Payroll Tax Cuts

On the minds of many workers these days is coping with the shrinking paycheck. Since the payroll tax cuts expired this year, Americans saw their checks reduced to what they feel are intolerable amounts.

Before January, workers enjoyed an additional two percent increase in take-home pay. This was made possible when Social Security tax contributions were cut to 4.2 percent over the past two years. Now that this benefit has lapsed, Americans are feeling the pain, with many moaning and groaning of having to do without this extra money.

Bad news is we have been made to adjust our spending habits. But according to a recent study released by the American Institute of CPAs, it has made many professionals more financially responsible.

According to the survey, almost half of the participants will be saving more of their tax refunds this year. Nearly 33 percent expect to use this money to pay off their debts.

But with less take home pay, 37 percent admitted they would use their refunds to sustain their daily expenses. While many taxpayers have chosen to use the money to care for their financial needs, others will not have that opportunity.

What the survey revealed is that there are still too many taxpayers not saving enough for their future. Almost all who have had to make some adjustment were either contributing less to their retirement plans, reducing their emergency funds stash and many more have had to stop paying off their loans.

What the survey leaves out though, is the past behavior of participants. Some habits are hard to break. It's rare to find consumers making drastic financial changes during tight times. It would have been interesting to determine how many had made any significant changes before and after the payroll tax cuts took effect.

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