Americans Adjust Spending to Cope with Payroll Tax
WASHINGTON -- A change in federal tax law that decreased the take-home pay of many working Americans is affecting household budgets. In fact, 73.3% of respondents to a recent survey say their spending plans have taken a hit.
When asked how the restoration of FICA, or payroll taxes, to their old level of 6.4% have affected spending, saving or budgeting of their households, 58.2% of those polled said either “somewhat” or “greatly” affected, according to a National Retail Federation survey. Specifically, 45.7% say they will spend less overall and 35.6% will watch for sales more often.
In addition, 33.5% said they will eat out less and 24.5% will spend less on “little luxuries,” such as trips to coffee shops, manicures and high-end cosmetic items.
According to NRF’s 2013 Tax Returns Survey conducted by BIGinsight, nearly three-quarters (73.3%) of those polled say their spending plans are taking a hit.
A smaller paycheck resulting to the “fiscal cliff” reached early in the New Year, higher gas prices, low consumer confidence and continuing uncertainty about our nation’s fiscal health is negatively impacting consumers and businesses across the country,” said Matthew Shay, NRF president and CEO.
Of those greatly affected, 49.2% will delay major purchases, such as a car, TV or furniture, and 58.2% will reduce the amount they dine away from home; another 43.4% say they will save less, 46.4% will comparison shop more often, and 54.4% will spend less on clothing.
Of individuals who say smaller paycheck will have little to no effect, many will still alter their spending habits. According to the survey, of this group, 22.4% say they will spend less overall, and 15.8% will use coupons more often. An additional 11.1% will reduce their entertainment plans, 11.6% will cut back on vacation and travel plans and 17.9% will watch for sales more often.
The survey found that half of those who make less than $50,000 a year say they will spend less overall. Additionally, 23.2% will spend less on groceries, compared to 16.7% of consumers who make more than $50,000 a year, and 27.6% will shop at discount stores more often, compared to 19.7% of adults making more than $50,000.
Tax season is in full swing, and 29.2% of respondents say they have already filed their returns (as of Feb. 13) and another 29.2% will have filed by the end of the month. Some 27.4% will file in March and 14.2% will wait until the deadline and file in April.
Nearly two-thirds of consumers expect a refund from the U.S. Treasury this year, and when asked how they plan to spend it, 37.2% say they will pay down debt, 44% will save it and 29.7% will use it for everyday expenses. Of the group whose spending plans have been most affected by payroll tax hikes, 48.1% of those expecting a refund say they will pay down debt, and 40.2% will save it.
When it comes to how Americans will file their taxes, the number who file online continues to increase. This year, 62.5% of U.S. taxpayers will file online, up from 60.7% last year and the most in the history of the survey. Additionally, 37.3% will use computer software programs to prepare their returns, 20.2% an accountant, 18.8% a tax preparation service, and 14% will prepare by hand.
Published by The Business Journal, Youngstown, Ohio.
CLICK HERE to subscribe to our free daily email headlines and to our twice-monthly print edition.