Consumers unaware of tax holiday in spite of larger paychecks

A recent poll hosted on the National Foundation for Credit Counseling (NFCC) website revealed that close to half of the 2,037 survey respondents, 46 percent, were unaware of the Social Security tax break which cuts the workers’ share of Social Security payroll taxes by close to one-third during 2011.

Since the tax cut results in a larger paycheck, it is puzzling why so many people remain unaware of this windfall money.  One of the basic elements of personal finance is knowing how much you make, as this should be the basis of all spending decisions.

Since the percentage of the tax cut is the same across the board, the lower wage earners won’t realize as large of a dollar amount increase in their checks. However, those earning up to $106,800, the maximum amount of wages subject to Social Security taxes, could enjoy an extra $2,000 in their paychecks over the course of the year. Regardless of the amount, consumers should put this money to good use while they have it, as the tax cut was only approved for 2011.

For those who were aware of the extra money in their pockets, most indicated they would use it to deal with an existing debt concern. Twenty-two percent responded that they would utilize the money to catch up on past-due bills, while19 percent earmarked the money for increased payments to creditors. Eight percent intend to put the extra money into savings. Only three percent felt that the best use of the money was to prepare for their future by putting it toward increased retirement contributions. While the intent of the tax cut was to stimulate spending, only one percent indicated they would treat themselves to something special, suggesting that consumers are not inclined to begin spending.


The actual poll question and results are as follows:

Q: Paychecks are now larger due to the social security tax holiday. What are you going to do with this windfall money?

A. Save it = 8%
B. Catch up on past-due bills = 22%
C. Increase payments to creditors = 20%
D. Increase retirement contributions = 3%
E. Treat myself to something special = 1%
F. This is news to me - I haven't heard a thing about it = 46% 

MMI is a member of the National Foundation for Credit Counseling.  The NFCC’s February Financial Literacy Opinion Index was conducted via the homepage of the NFCC Web site from February 1-28, 2011 and was answered by 2,037 individuals.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.