While the fiscal cliff tax deal cut by Congress last month targeted primarily higher wage earners, every American worker is feeling the effects of the payroll tax hike that went into effect on January 1, raising the Social Security payroll tax from 4.2% to 6.2%.
According to the Tax Policy Center, the average employee will feel an annual pinch of about $700 due to this increase. Families with an annual household income of $100,000 face an income loss of approximately $2,000 a year.
A recent post on CNBC.com provides some tips on what we can all do to help offset this loss in income:
Adjust withholding. Love getting that big fat IRS refund check every April? Well, you’re not doing yourself any favors. By banking with Uncle Sam, you are shorting yourself on funds you can use for your daily expenses. Be sure you are taking the maximum number of withholding allowances to put that money back in your hands; you can check using the IRS Withholding Calculator.
Shop your insurance. Financial experts advise consumers to shop around for car and home insurance every year, as rates are constantly changing. You may be able to qualify for a number of discounts that will lower your rates as well.
Max out 401(k) contributions. You can reduce your taxable income by contributing the maximum amount to your 401(k). In 2013, you can contribute up to $17,500; if you’re over the age of 50, you can add another $5,500 in “catch-up contributions” for a total of $23,000.
Mortgage refinancing. Mortgage rates are at an all-time low and you may be able to significantly reduce your monthly mortgage payment by refinancing now.
Cut monthly fees. Check all those auto-pay fees and be sure you still need those services you signed up for that take a chunk out of your take-home pay every month. If your credit score is good, you should be able to qualify for low-rate credit cards as well.