Essential Ways to Counter Payroll Tax Hike

Paychecks seem to weight lighter these days. Well, the Social Security Tax Withholding is back to where it started! The years 2011 and 2012 where golden for employees as the payroll tax temporarily dropped to 4.2% from 6.2%. But now, it’s again 6.2%. This 2% increase will cost an average worker around $700, and for a family with an annual income of $100,000, it’s going to mean a loss of $2000 in income. Around 160 million workers with wages up to $113,700 annually are paying this tax. And if you are also one amongst the 160 million workers, then it’s high time for you to make up for the dollars you have lost. Here are a few tips to counter your payroll tax hike:

Tax Withholding:

As a good start, using the worksheet available on the Internal Revenue Service (IRS) website, figure out the withholding allowances that you can claim. Every year, Americans usually get income tax refunds resulting in extra money every month. If you are also one of amongst them, then you can use that money for your day-to-day expenses.

401k Contribution:

Do you have a retirement plan? If yes, then try contributing the maximum to 401k. And what’s special about it is that there’s a 3% increase this year, allowing you to save up to $17,500. Remember, the more you put in here, the less is your taxable wages. Even a 1% increase in your contribution will make a difference in your tax bill and not your paychecks.

Insurance:

It’s time to check all your property and life insurance policies. Try comparing rates and also inquire your insurance agent for discounts available for bundling multiple policies and check if there’s any chance to lower premiums. To ensure that you are getting the best rates possible, get opinions from other agents also.

Mortgage:

This is the right moment for you to take advantage of the historically low rates. You might have been waiting for the rates to go even lower, but don’t wait anymore to lower your mortgage payment per month. Figure out how much you can save from getting a good rate on your mortgage, by using online calculators available on various websites.

Here are a few more tips that maybe of help:

·         Stop your payments for things you don’t need any more or you rarely use like Netflix account.

·         Avoid extra or unnecessary charges on ATMS. Try negotiating with your bank to lower the charges on your accounts.

·         You can also try switching to a lower rate credit card. At the same time, ensure that you maintain your credit score, to get the lowest rates possible.

·         It’s better to review all your automatic deposits and make sure that you will be able to meet the daily expenses. You can also try investing in exchange-traded funds to lower the investment fees.

Last but not the least, A Second Job! Nobody will like it as you have to pay payroll tax for that money too. But, if the job is something fun and light, it will be worth a try. After all, it’s exploring another career, which may prove to be a boon in the future.

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