This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

With Payroll Tax Back, Consumers Look to Refunds for Basic Needs

NEW YORK ( TheStreet) -- Maybe you've heard the term "the law of unintended consequences?"

It's what happens unexpectedly after plans and processes are into place -- and it's usually not good news.

Take the 2% payroll tax cut enacted by Congress in 2011 and 2012 to spur consumer spending and kick-start a slumbering U.S. economy.


Well, 2011 and 2012 have come and gone, and the payroll tax is up again, and with it a noticeable decline in take-home pay for tens of millions of American workers.

Officially, on Jan. 1 employee payroll taxes rose to 6.2% from 4.2%, leaving less money in consumers' pockets.

Removing a tax cut that was mean to jumpstart economic growth may have the opposite effect when it's snatched away -- the "law of unintended consequences" part of the equation.

Here's one way U.S. consumers are responding to having less cash in their pockets: A survey by the American Institute of CPAs and Harris Interactive says most tax refunds are going toward day-to-day expenses.

The survey last month of 1,011 U.S. adults reveals that 43% of respondents who get a tax refund say the refund is "more important" this year than in years past. While 46% say they will stash their refund into savings, 37% say they will use it for those day-to-day expenses.

The AICPA adds that 71% of study respondents say the payroll tax hike has had an impact on their finances, with 96% say they had to make some kind of adjustment in their personal finances after finding less cash in their paychecks this year.


Common cutbacks in Americans' household budgets after the tax hike include:

  • 70% are putting less in their emergency funds.
  • 51% are cutting back on cable television and Internet services (especially on digital entertainment).
  • 45% are curbing their retirement savings.
  • 17% are skipping payments for credit cards, a utility or even mortgage debt.

With less money on the table, Americans believe they'll need to be more frugal this year than last, and that certainly won't help the consumer spending portion of the U.S. economy.

"Last year the U.S. government sent checks totaling nearly $310 billion to taxpayers, underscoring the significance of tax time to American households," says Ernie Almonte, chair of the AICPA's National CPA Financial Literacy Commission. "This year, in the wake of a paycheck squeeze, many Americans are counting on those refunds for relief -- a way to bolster savings or shore up budgets. It's critical that they have a well-thought-out plan for using the funds to maximize the benefit to their financial well-being."

The AICPA advises cash-strapped Americans to prioritize when it comes to spending a tax refund. Household basics such as food and gas come first. After that, setting up an emergency fund and paying off debt can be addressed, if the cash is available.

If you're cash flush and can think long term with your tax refund, use it to make an extra mortgage payment or to stash more money into your retirement fund.


More and more Americans don't have that luxury these days. Instead of popping some money toward that retirement in Fort Myers, chances are the money is going into your food budget or fuel tank.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,265.99 +109.14 0.64%
S&P 500 2,011.36 +9.79 0.49%
NASDAQ 4,593.4250 +31.2360 0.68%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs