Last week, the youth group at our church took a spring break trip to San Antonio - and it was my privilege to be one of the chaperones. One thing about 50 adolescents on a bus for 11 hours - you hear a lot of conversations. Surprisingly, one of those conversations was about payroll.
Why would a sixteen year old talk about payroll on a spring break trip? Because summer is almost upon us and it’s about time to start looking for a summer job to pay for the gas. So as one youth counseled the other youth on things such as tax withholdings and direct deposit, I made a mental note to pull out my Money Matters material when I got home and write an article.
What is Money Matters? It is a free program sponsored by the American Payroll Association and MasterCard as part of a nationwide effort to educate our youth on financial literacy. The aim of this program is to take the shock out of the payroll tax system for teens new to the workforce. Topics include completing a W-4 form, explanation of different payroll taxes, and how the net pay is calculated. This year, the MasterCard Money Matters National Education Day is September 6, 2012, but I teach the class throughout the year whenever I am asked.
When I teach Money Matters, I also include discussions on bank accounts, debit cards vs. credit cards, saving, and budgeting. Since most of my talks have been to church youth groups, I also include the importance of tithing. Whether you are reading this now as an employer or a parent, I’m sure that you can respect that our young people need to be financially literate, and they need to be taught the basics of money management. It will be important for their success both personally and professionally. Sadly, while we teach history, grammar, math, etc., we do not do a very good job in this country of educating our children on the importance of good financial stewardship. Let's make a commitment to change that this year.
When I googled TTCA a few minutes ago, my top result was the Tibetan Terrier Club of American followed by the Texas Tennis Coaches Association. Apparently, some things are considered more interesting than the Temporary Payroll Tax Cut Continuation Act of 2011, aka TTCA. Go figure.
But as employers, it is important for you to know that in February, Congress came through for the American worker and extended the 2% FICA tax cut through the end of 2012 (bonus points if you know what FICA stands for). As you will recall, TTCA originally extended the 2% cut of 2011 only through the end of February 2012. The passage of H.R. 3630 the “Middle Class Tax Relief and Job Creation Act of 2012” not only extends the 2% FICA reduction through the end of this year, but it also repeals the TTCA recapture provision, which applied to taxpayers whose wages for the first two months of this year exceeded $18,350.
This means that Social Security tax will continue to be calculated at the reduced rate of 4.2% on wages up to $110,100, but the employer match portion remains at 6.2%. Self-employed workers will also receive a 2% reduction which translates to 10.4% for those individuals. Enjoy the holiday.
Almost forgot, the bonus answer is Federal Insurance Contributions Act (FICA) – or it could be the Fur Information Council of America. I love Google.