Millions of Americans are cringing at their first paychecks of the year as they realize they are making less money in 2013 than they have in 2 years. The culprit behind your shrinking earnings is changes to the payroll tax. In the years leading to the 2012 elections, payroll taxes were slashed by 2 percent. After the elections, the tax cut expired and rates when back up to 6.2% on earnings up to $113,700.
Since the tax increase only applies on earnings up to $113,700, those making the lowest wages felt the increase the most. This middle class tax hike can make a big difference in the average families monthly budget. Read on to discover 5 ways to help offset the loss in wages.
1. Adjust your withholding
This is the advice most commonly given since a lot of people receive a hefty tax return each year. Check out the withholdings worksheet put out by the IRS to determine if you should change your withholdings. Making this simple change can put more money in your pocket each paycheck to help offset the cost of the payroll tax hike. However, beware that many are warning of more tax hikes to come, so changing your withholdings now could put you in trouble at tax time next year if deductions are removed or taxes are raised.
2. Contribute more to your 401K
Your 401K contributions come out of your pre-tax wages. Contributing more to your 401K will reduce your taxable income, leaving you with more money in your retirement account and possibly more money in your pocket each week as well.
3. Shop around for insurance
Insurance rates can vary greatly from company to company. Shop around to get the best rates on auto, home and life insurance to help save on your monthly bill. If you can, look into different health insurance plans and dental insurance plans through your employer to find additional savings.
4. Refinance your mortgage
Take advantage of the low interest rates to refinance your mortgage. Choose a 30-year fixed rate mortgage to keep the savings coming even after the market recovers. You could potentially save hundreds of dollars each month on your mortgage payments depending on how large your loan is and how high your current interest rate is.
5. Check all of your fees
If you pay for a monthly service that you no longer use, such as Netflix, it might be time to let it go. If you do use Netflix, maybe you can replace your current cable subscription with it. Don’t use your home phone? Don’t keep it. Do you really need all 500 of those cable channels? Look for ways to reduce or eliminate reoccurring monthly fees to offset the payroll tax.
There are plenty of ways you can offset the payroll tax if you get creative and put in the work needed to buckle down and make the changes happen. Tax increases hurt everyone, but by getting creative you can minimize the effect they have on your family.