When Congress passed the fiscal cliff bill, the fear of higher taxes evaporated and unemployed Americans kept their benefits, but hard-working Americans had to help foot the bill with higher Social Security taxes.
Congress reduced the Social Security payroll tax rate for 2011 and 2012, with the employee contribution cut from 6.2 percent to 4.2 percent, to help stimulate the economy by putting more money in consumers’ pockets.
However, the fiscal bill’s passage returned the rate to 6.2 percent, resulting in smaller paychecks any day now.
“If a person was fortunate enough to have received a pay raise, it’s likely that this Social Security tax increase will wipe out most of it,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC).
“Americans, particularly those already living on the financial edge, need to act fast to adjust their budgets accordingly,” Cunningham added.
The NFCC suggests considering these budget adjustments.
Adjust withholding – If you receive a tax refund, you’ve given the government a tax free loan. Change your withholding to reflect your true tax liability. Use the Internal Revenue Service’s Withholding Calculator to adjust your withholding.
Pay with cash – Knock 20 percent off expenditures by paying in cash instead of credit. Credit comes with mounting interests costs. Chances are you’ll never feel deprived.
Refinance your mortgage – If you’ve got the equity and can qualify, a refinanced mortgage cans save you more than the extra Social Security Tax.
Drop $10 from 10 budget categories – It’s easier than you think to spend $10 each month less on clothes, cleaning, entertainment, Starbucks and other spending categories.
Do it yourself – Wash your own car. Clean your own house. Mow the lawn. Stop paying for things you can do yourself.
End bad habits – Smoking, drinking, gambling and other bad habits aren’t good over the long term and they cost money you can better use elsewhere.
Sell stuff – Clean out the garage, attic, storage room and closets. Make money selling the contents, especially those you haven’t used in six months or more. With that much time in storage, it’s not likely you’ll ever use those items again.
Consolidate insurance policies – All your insurance (home, car, life, health) from one insurer can come with big discounts. Raise your deductibles and go after discounts for loyalty, good driving, healthy habits and home safety measures.
Keep tabs on bank statements – End auto-pay services and subscriptions you don’t use. Don’t use ATMs out of your bank’s or credit union’s network. Sit down with your banker and ask how to get lower fees.
Get a job – Turn a hobby into a small side job. Get paid to do something you like and it won’t feel like work.