For the past several months my husband and I along with millions of other Americans held our breath waiting to see if our government would stop us from going over the "fiscal cliff." While they did manage to keep us from going over the cliff, they didn't manage to spare us from all tax increases. According to an article published on Yahoo! Finance by The Wall Street Journal, a temporary cut in Social Security tax with-holdings that was put in place during the great recession was allowed to expire. What does it all mean? It means Americans will be bringing home less money on every paycheck.
This is how the Social Security tax changed, how it's affecting my family's finances, and what I'm doing to cover the loss of funds.
How the Social Security tax changed.
As a part of the "Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010," the amount of money withheld from American paychecks for Social Security was lowered. Before that time, the government took 6.2% of a person's gross salary. After the bill went into effect, the percentage fell to 4.2% where it has remained until now. As of January 2013 taxpayers will again see that tax go up to 6.2%.
How the change is affecting our finances.
My husband earns around $50,000 gross pay per year, which means an additional 2% tax would increase his yearly with-holdings by $1000, or about $38.47 bi-weekly. That may not seem like a lot, but you have to put it in prospective. For us $1000 is two mortgage payments, or nearly five months of groceries. Thinking about the increase in these terms makes it seems much more drastic.
What I'm doing to cover the loss.
Luckily, I don't have to find a way to cut the entire $1000 at once. I just need to make enough cuts to cover most of the $38 bi-weekly, which won't shouldn't be much of a problem thanks to some recent life changes we've made. My husband and I recently changed the way we eat, which is saving us quite a bit of money. Giving up soda alone is saving us around $12 a week, or $624 a year. That along with our other food changes will cover the loss of income.
Losing a $1000 a year is never easy, but I suppose in the grand scheme of things it could have been a lot worse.
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