By now, almost all Americans are aware that the fiscal cliff crisis was largely averted thanks to some post-New Years’ Day actions by the House and the Senate. While the impact of the ominous fiscal cliff may have largely been averted, employees who must pay payroll taxes will indeed see an increase in their tax liability. This is because the payroll tax will increase by 2 percent for all wage earners. Those earning $100,000 will pay an additional $2,000 per year in taxes, and this will result in a reduction in take-home pay with the first paycheck issued in 2013. While the amount may sound small, it can have a major impact on the budgets of families that were already living on tight budgets. Here are just a few steps that you can take to ease the burden of the tax increase in your home.
Make Permanent Changes
If you are like most people who have learned that your paycheck amount will be decreasing, you may have immediately thought that you would no longer be able to stop at the corner coffee shop each morning or may have to take a brown bag lunch to work. However, if you are accustomed to these things, it can be difficult to adopt these changes on a permanent basis. Your paycheck adjustment is a permanent change, so you should consider making permanent changes to your budget as well. For example, shop for a lower insurance premium for your car or home insurance or refinance your car. You may also consider eliminating the bonus channels on your cable plan or canceling cable altogether.
Decrease Retirement Contributions
Many families today are saving a considerable amount of money in their retirement savings accounts each month. While you may not think that decreasing your savings is the right answer, it may make sense in some cases. If you have been over-funding your retirement account and are faced with the possibility of having to live on credit cards due to the tax changes, re-allocating your retirement contributions may be the ideal solution. Also, keep in mind that it is better to save less if the alternative is to rely on credit cards to survive.
A Combination of Steps
The fact is that you likely will not be able to make up the difference in your taxes by employing just one of these ideas. Whether your paycheck will be decreasing by $100, $200 or more per month, you may consider searching for different permanent changes that result in smaller savings amounts. For example, eliminating a movie channel from your cable plan may save you $10 per month, and switching to a different cell phone plan may save your $20 per month. By making these small changes across your entire budget and decreasing retirement contributions to make up the difference, you may be able to accommodate the decrease in your paycheck easily.
The fact is that the tax changes for 2013 may have a significant impact on your paycheck, but you may not need to make uncomfortable lifestyle changes to accommodate them. Consider putting these tips to use today to prepare for the changes in your paycheck this year.
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