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How to make up for the increase in SS withholding
6 Ways to Beat the Social Security Tax Increase
by Gary Foreman
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If you've received your first paycheck for 2013, you're probably steamed that your take home pay was a little short. The fiscal cliff deal passed by Congress and signed by President Obama ended the temporary reduction in FICA tax. That's the tax that feeds the Social Security Trust Fund. As of January 1st, there is a 12.5% tax on all earned income up to $110,000, which will be split evenly between employer and employee. That means that most of us saw a 2% tax increase in our most recent paycheck.
Personal Finances photo from Shutterstock
For someone earning $50,000 a year, that's a $1,000 tax increase. Or $83 a month that they won't have available to spend or save.
We won't get into the merits of whether the tax should have been raised or not. That's already been decided in Washington. What we will do is to show you six tools that could help you make up the difference in your take home pay.
Refinance your home. If your home value is higher than your mortgage amount, you could take advantage of low interest rates to refinance. Borrowers with good credit can find loans in the 3% range. You can estimate what your new mortgage payment would be using an online calculator like those at Bankrate.com. Compare the new and old payments to see how much you'd save. Don't forget to subtract any mortgage closing costs from your savings.
Shop your home insurance policy. Your needs may have changed since you last reviewed your policy. Insurance companies change their rates, too. It only takes an hour or so to make sure you have the right insurance and that you're getting the best rate. It's unlikely you'll save the whole $1,000, but you could take a big chunk out of it.
Shop your auto insurance policy. The same thing is true with your auto policy. The insurance you need changes with time. You may be able to handle a bigger deductible, or your older car might not need collision coverage. And, rates vary between insurers, so believe the TV commercials when they say that a quick comparison could save you hundreds.
Eliminate a monthly expense. Most of us have monthly subscription services that are built into our lifestyle. Things like premium cable channels and health club memberships. Twenty or thirty dollars a month didn't seem like much when you signed up, but now the savings could be important. Naturally, you won't want to give up the service. So you'll need to look for a way to get most of the benefits at a much lower cost. For example, could you give up unlimited text messages if you used more email or made a few more phone calls? Or do you really need the gym membership for their treadmills if you could find a used one on Craigslist?
Save on routine expenses. There are some budget categories that are large and where we spend money often. Food is a good example. Most of us shop weekly for groceries. According to the U.S. Bureau of Labor Statistics, the typical American family spent $6,458 or nearly 13% of their budget on food. By using coupons, a grocery pricebook and purchasing less prepared foods, you could cut your bill by 10% or more.
Gasoline is another regularly purchased expensive item. The same BLS report says that you spent $2,655 on gas last year. It may be time to reconsider starting that carpool or using a bike for shorter trips.
Change daily spending habits. We all have daily habits. Coffee breaks, a quick stop at the convenience store on the way home from work, or glass of wine with dinner each night seem like a small expense, but they do add up. Replace one of those habits with something less expensive. If you save $1 a day by bringing coffee break items from home, you'll have achieved one third of your $1,000 goal.
Most of us were ticked to see our take home pay drop at the beginning of the year. Already challenging times just got a little tougher, but you're not helpless. By taking control of your finances, you can minimize the effect of the new tax.
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Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report and he's a regular contributor to US News Money and CreditCards.com. You can follow Gary on Twitter or visit Gary Foreman on Google+. |
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