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Payroll Tax Hike Hits 'Little Luxury' Budgets

tax time . / Credit: Dreamstime.com

Less than two months since the federal payroll tax was raised, U.S. workers are already feeling the impact of the increase, new research shows.

A study from the National Retail Federation found that nearly three-quarters of employees have seen their spending plans take a hit because of the decrease in their take-home pay.

Overall, nearly half of the workers affected by the increase will spend less overall, while 35 percent will watch for sales more often. Additionally, one-third of the workers plan to cut back on how often they dine out, with 24 percent spending less on "little luxuries," such as trips to coffee shops, manicures and high-end cosmetic items.

"A smaller paycheck due to the fiscal cliff deal early last month, higher gas prices, low consumer confidence and ongoing uncertainty about our nation’s fiscal health [are] negatively impacting consumers and businesses across the country," said Matthew Shay, president and CEO of the National Retail Federation. 

The research revealed that, among the employees who said the payroll tax has greatly affected them, nearly half will delay major purchases, such as a car, television or furniture. Meanwhile, 43 percent will contribute less to savings, and 46 percent will comparison shop more often.

Looking for a quick infusion of cash, more than 30 percent of those whose spending and budget plans have been affected by the payroll tax increase have already filed their income tax returns. The research shows that 48 percent of those affected by the tax increase who expect a refund will use it to pay down debt, while 40 percent will put the refund toward savings.

"Americans are extremely mindful of how they spend their hard-earned money these days, and that includes any refund they may get back from their taxes," said Pam Goodfellow, consumer insights director for BIGinsight, which conducted the study.

"Thanks to years of practice stemming from high gas and food prices, and an uncertain economy, families will adjust to the changes in their take-home pay by purchasing generic brands, searching for coupons, downgrading on services like cable and Internet, and re-evaluating their overall spending habits."

The study was based on surveys of 5,185 U.S. consumers.

Follow Chad Brooks on Twitter @cbrooks76 or BusinessNewsDaily @BNDarticles. We're also on Facebook & Google+.

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.

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