The Social Security Tax Hike: Finding Money

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Paychecks are getting smaller. While many Americans are breathing a sigh of relief that their income tax did not increase, there is nonetheless a tax increase that will impact all paychecks. 

The Social Security payroll tax rate was reduced for 2011 and 2012, with the employee contribution cut from 6.2 percent to 4.2 percent.  The intent was to put more money in people's pockets, thus stimulate spending.  The rate will now increase to the former level, resulting in smaller paychecks for American workers.

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.  Americans, particularly those already living on the financial edge, need to act fast to adjust their budgets accordingly.

To help consumers find extra money to offset the tax hike, the NFCC suggests exploring the following areas:

  • Adjust withholding – Millions of Americans receive large income tax refunds each year when they could have extra money each month.  Calculate the proper number of withholding allowances by utilizing the worksheet at www.IRS.gov.
  • Pay with cash – People who pay for purchases with cash typically save 20 percent compared to previous credit spending, and never feel deprived. 
  • Refinance the mortgage – Take advantage of historically low rates to reap a lower monthly mortgage payment.
  • Ten dollars from 10 categories – Carving $10 off of 10 spending categories is a painless way to find extra money. 
  • Do it yourself – Small savings add up.  Stop paying for things you can do yourself such as washing the car, cleaning the house, or mowing the lawn. 
  • Stop bad habits – Make good on those New Year's Resolutions to stop smoking, drinking, and playing the lottery.
  • Clean out the storeroom – It's a double-play to sell the contents of the storeroom, thus eliminating the need for extra storage.  Money in the pocket from the sale, and no more rent payments.
  • Save on insurance premiums – Examine all policies and compare rates.  Inquire about ways to lower premiums, and ask about any discounts for loyalty, good driving and the bundling of multiple polices.
  • Examine bank statements – Don't continue to pay for things no longer needed just because they're set up as auto-pay.  Avoid unnecessary charges by not using out-of-network ATMs.  Negotiate with the financial institution for lower fees or change banks.
  • Earn extra income – Getting paid to do something fun won't feel like work, and honing a skill can pay dividends beyond financial. 

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For help finding hidden money in your budget, reach out to a trained and certified counselor. To find the NFCC Member Agency closest to you, dial toll-free to (800) 388-2227, or go online to www.DebtAdvice.org.  For assistance in Spanish, call (800) 682-9832.

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Gail Cunningham serves as vice president of membership and public relations for the National Foundation for Credit Counseling (NFCC), Inc. based in Washington, D.C. During over two decades in the industry, she has provided one-on-one financial counseling to thousands of consumers, and reached tens of thousands more through hosting television shows related to consumer education on cable and network television, as well as writing a weekly financial education column that appeared in multiple newspapers and online sites. She has been a featured financial expert for the nation’s top media outlets, including: NBC Nightly News, Good Morning America, the New York Times, the Washington Post, CNN, National Public Radio, USA Today, Newsweek, Forbes, Smart Money, MSN Money, Bankrate.com, the Associated Press, FOX Business Network and Bloomberg News.

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