Young people may need to take more initiative to become more tax-savvy consumers. Employers also need to consider if they are doing enough. For example, are they communicating in the ways most receptive to young employees
Riverwoods, Ill. (Vocus) March 1, 2007
Young taxpayers are significantly less likely to take advantage of tax-related benefits, are most likely not to know whether they are eligible to participate, and nearly one in five rate their employers as terrible in providing information about tax-advantaged planning, according to findings from a nationwide CCH CompleteTax survey. CompleteTax (http://www.CompleteTax.com) is an online tax preparation and e-filing service for individual taxpayers developed by CCH, a Wolters Kluwer business and a leading provider of tax and accounting law information, software and services.
"You generally can't avoid taxes, but there are some ways you can reduce them without a lot of pain. Unfortunately, taxpayers are still not as informed as they should be or participating as much as they could be to realize these tax savings," said David Bergstein, CPA, a tax analyst for CCH CompleteTax.
The survey of 1,290 U.S. adult taxpayers, commissioned by CCH and conducted by Harris Interactive®, found that many taxpayers are not taking full advantage of basic tax-saving strategies and those 18-24 years of age are the least likely to be doing so. The biggest jump in usage of tax-advantaged programs occurs between the age groups of 18-24 year-olds and 25-34 year-olds, with the percentage of individuals contributing to a medical flexible spending account (FSA) or 401(k) plan more than doubling between these age groups, and the percentage contributing to an individual retirement account (IRA) increasing 10 percentage points. The survey also found that 14 percent of all adult taxpayers are currently not saving for retirement.
Among specific survey findings:
- On average, 21 percent of taxpayers participated in a medical FSA in 2006, with 7 percent putting in the maximum amount allowed. However, among young taxpayers, those 18-24 years of age, only 10 percent participated in a company-sponsored medical FSA. Just 4 percent of young taxpayers are putting in the maximum allowed. An additional 11 percent of young taxpayers, however, are uncertain whether their company offers a medical FSA.
- Overall, more than one-half of all taxpayers (56 percent) contributed to a company-sponsored retirement plan, including a 401(k), 457, 403(b) or SEP-IRA plan. This includes 14 percent of taxpayers that reported contributing fully in 2006 and 23 percent contributing at least up to the amount needed to make their employer reach their maximum contribution level under the plan. Young taxpayers were the least likely to participate in these retirement plans, with only 28 percent saying they do so, including just 4 percent that reported contributing fully and 16 percent contributing up to the amount needed to make their employer contribute the maximum under the plan.
- While 3 in 10 taxpayers reported they have or would be contributing to a 2006 tax-advantaged traditional or Roth IRA, only 19 percent of young taxpayers reported that they are funding a 2006 tax-advantaged IRA. The majority of young taxpayers (57 percent) do not even know if they qualify for a tax-advantaged IRA.
- It is not surprising, as a result, that young taxpayers don't think their employers are doing a good job at keeping them informed on topics such as retirement planning. Overall, 23 percent of taxpayers rated their companies as doing an excellent or very good job keeping them informed. However, only 15 percent of young taxpayers felt this way, and only 1 percent of young taxpayers indicated their employer did an excellent job, while 19 percent said their employer did a terrible job.
"Young people may need to take more initiative to become more tax-savvy consumers. Employers also need to consider if they are doing enough. For example, are they communicating in the ways most receptive to young employees," said Bergstein. "If young workers are not hearing the message, no matter how good it is, they don't have the information they need to make informed choices."
Bergstein outlined a few steps that taxpayers of all ages should consider:
- Make a commitment to become a more informed taxpayer and don't be shy in asking your employer if you have questions on benefits. Add up how much you paid in income taxes for the year and make time to find out what tax saving programs you may qualify for. For example, if you are in the 25-percent tax bracket, you may be able to save as much as $125 in taxes by just contributing $500 to an IRA or 401(k).
- Participate in your employer's medical FSA, if available. Even if you conservatively estimate your medical expenses, why not pay them with pre-tax dollars through your FSA versus after-tax dollars.
- Contribute as much as you can to your 401(k) and try to fund at least up to the amount needed to get your employer to contribute the maximum amount they have committed to under your plan.
- Start being tax-savvy now. If you've not yet filed your tax return, you still have time to contribute to an IRA for 2006. Take at least some of your expected tax refund and have it start working for your retirement.
"In general, people need to get in the habit of saving more and saving when they are younger. You have older taxpayers now using the catch-up contributions. This lets those individuals 50 and older save more, but if you start saving earlier it could mean getting your employer to pitch in more through your 401(k) or realizing a lot more of your savings growing in tax-advantaged accounts," said Bergstein.
Election 2008: Engage in the Debate
The CCH CompleteTax survey also asked taxpayers whether or not they believed the flat, standard tax deduction for health insurance proposed by President Bush would be good for them from a tax-savings perspective. On average, 46 percent of taxpayers indicated they thought it would be good; 27 percent reported it would not be good for them; and 27 percent indicated they weren't sure. However, among young taxpayers, only 38 percent thought the proposal would benefit them, while 37 percent were uncertain.
"Health care policy and tax policy are becoming increasingly linked at the individual taxpayer level, and we're certain to hear a great deal more about both as we head into the 2008 election," said Bergstein. "Just as consumer-driven health care is requiring that individuals be more informed about their health care, it's going to be increasingly important for individuals to be informed about how health care policy affects how much they pay in taxes."
About the Survey Methodology
This survey was conducted online within the United States by Harris Interactive on behalf of CCH CompleteTax from February 5-7, 2007, among 2,289 adults (aged 18 and over), of whom 1,290 were employed at least part time (more than 20 hours per week) during 2006 and plan to file a 2006 federal income tax return (referred to as "taxpayers" in this release). Figures for region, age within gender, education, household income and race/ethnicity were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents' propensity to be online.
With a pure probability sample of 2,289 one could say with a 95-percent probability that the overall results would have a sampling error of +/- 3 percentage points. Sampling error for data based on sub-samples would be higher and would vary. However, that does not take other sources of error into account. This online survey is not based on a probability sample and therefore no theoretical sampling error can be calculated.
About CCH CompleteTax
CCH CompleteTax, an online tax preparation and e-filing service for the do-it-yourself taxpayer, continues to set the standard when it comes to making online tax prep and e-filing easy, efficient and affordable. CompleteTax offers comprehensive support to help taxpayers through each step and allows them to prepare a federal income tax return for just $25.95 and a state income tax return for $12.95, including free e-filing. Taxpayers can try before they buy, as CompleteTax does not require payment until a return is ready to be e-filed or printed and mailed.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business is a leading provider of tax and accounting law information, software and services. It has served tax, accounting and business professionals and their clients since 1913. Among its market-leading products are The ProSystem fx® Office, CCH® Tax Research NetWork™, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill.
Wolters Kluwer is a leading global information services and publishing company. Its shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. For more information, visit http://www.wolterskluwer.com.