How to offset higher payroll taxes

Published On: Mar 30 2013 08:19:42 AM EDT
Updated On: Mar 30 2013 08:22:11 AM EDT
JACKSONVILLE. Fla. -

For many people, 2013 has meant less money in their paychecks. All because of legislation congress passed to avoid the fiscal cliff. That legislation also increased Social Security taxes by 2 percent. But Cathy Hufstetler, Vice President, Lending for 121 Financial Credit Union says there are ways you can offset your higher payroll taxes.

Hufstetler says the Social Security payroll tax rate was reduced for 2011 and 2012, from 6.2 percent to 4.2 percent. The intent was to put more money in people’s pockets to stimulate spending. The rate increased back to the former level in January 2013. If a person was fortunate enough to have received a raise, it’s likely the tax increase wiped out some or most of it.

If you're looking to offset the hike, Hufstetler says the first thing you can do is adjust your withholding.

"If  you receive a large tax refund each year you could adjust your withholding to have the extra money each month," Hufstetler says.

Use the worksheet at www.IRS.gov to calculate the correct number of withholding allowances.

Other things you can do every day include paying with cash. Hufstetler says people who pay for purchases with cash typically save 20% compared to previous credit spending and never feel deprived.

Secondly, use the Ten dollars from 10 categories system. Hufstetler says look at your budget and try to carve $10 off of 10 spending categories.

And then, Hufstetler suggests cleaning out the garage or closet selling the contents and eliminating the need for extra storage. Savings are even bigger if you have a storage unit and you can eliminate the storage costs by selling the contents.

Other specific financial sources to help you cut your expenses include saving on insurance premiums. Hufstetler says review all your policies and check around to compare rates. Ask your agent about discounts for loyalty, good driving and bundling of policies.

You can also refinance the mortgage if you haven’t already Hufstetler says. Rates are still at historically low levels.

For more information contact the National Foundation for Consumer Counseling http://financialeducation.nfcc.org

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