In 2011 and 2012 we got a break when the Social Security payroll tax temporarily dropped from 6.2% to 4.2%. Now it's back where it started. For a family with a household income of $100,000, the payroll tax hike means a loss in income of about $2,000 a year. Making up for that loss in income will require some careful planning to cut expenses and increase earnings, but it can be done.
Here are some ways to find money to balance the increase:
Adjust your tax withholding
Many of us get big income tax refunds every year. While that can be quite a thrill, we could have extra money each month instead. Money you could use for everyday expenses. Use the free paycheck calculators at paycheckcity.com to run different scenarios and see if you can make your take home pay greater.
Max out your 401k
This is a must if you can spare the funds, especially if your employer matches a portion of your contribution. That's free money! If you have a qualified retirement plan at work, like a 401(k), contribute the maximum amount. You'll reduce your taxable wages by the amount you put in.
Save on insurance
Examine all your property, casualty, and life insurance policies and compare rates. Ask your agent about how to lower your premiums, discounts may be available. Also, get a second opinion from another agent to make sure you are getting the best rate.
Refinance your mortgage
Interest rates have been at historic lows! Keep your credit score as high as possible, and take advantage of these current bargain rates to lower monthly mortgage payments.
Check all accounts and fees
- Schedule so you pay your bills on time and don't incur late fees or penalties.
- Avoid unnecessary charges by not using out-of-network ATMs. You can negotiate with your bank for lower fees on your accounts, or switch to a bank (or credit union) with lower or no fees.
- Switch to a credit card with a lower or 0% interest rate, and be sure not to pay late or do anything that will take that new low rate to a sky-high interest rate. Lower investment fees by investing in index funds or exchange-traded funds rather than actively managed funds.