March 3, 2011

The Social Security Tax Break Facts

In December President Obama signed a Social Security tax break into law. This was good news, because it reduced the amount of Social Security tax taken out of workers’ pay, meaning an increase in a worker’s take-home pay. This doesn’t apply to everyone, and is only for one year, but by dropping the Social Security tax rate to 4.2% instead of the original 6.2% people below the pay cap, $106, 800, can see some extra money coming in.

For more information about tax breaks read Carla Fried’s article here.

By now, workers’ who are affected by this should have seen the adjustment in their pay. For example, for every $1,000 you earn in pay, instead of taking out $62 (6.2%), only $42 (4.2%) will be taken out. This tax break was meant to increase consumer spending but if you do notice this change, put the extra money to good use.

Paying Bills

First and foremost, use it to help pay off credit card debt or your current bills. Everyone is suffering from the economy, and with this little help from the tax break, people should use this extra money to their advantage. Pay off bills in full if you can, don’t settle for the minimum. Or if you are in debt, put as much money as you can toward that so you can pay it off sooner.

Increase Your Savings

Another way to utilize your additional income is to save it. When people receive a bonus or gift of cash, they usually spend it because they figure it is money they wouldn’t usually have. So don’t think of this tax break as a bonus or gift. Think of it as a start to a new savings account, or add it to your current savings account. Save it, and pretend like you never saw it. Don’t be tempted to spend, because you never know when you will need it for a rainy day.

These are the two most important ways to help in securing your financial future. I hope you take them into consideration and put that extra money to good use.

Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

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