It may be old news, but the end of the payroll tax holiday is an ongoing reality that affects everyone's paycheck. For an individual earning $50,000 a year, the two percent increase amounts to an extra $1,000 in taxes annually, the equivalent of $83.33 a month or $2.74 a day. For many taxpayers, that's enough to affect daily life. If you've had a little trouble adjusting to the 2013 tax increase, perhaps we can help you out.
The first and most commonly cited suggestion: Eliminate that expensive coffee habit. But anyone who enjoys a good cup o' Joe already knows the price and has decided it's well worth the cost. Indeed, there are certainly easier and more productive ways to offset the sting of the 2013 tax increase.
Start by looking at your basic monthly expenses, including mortgage or rent payments, cell phone bills, Internet and/or cable service, and the insurance policies you hold. These expenses typically are paid monthly without much thought -- the contract is in place and the service is necessary. But consider the possibilities. A mortgage can be refinanced, for example, and with rates as low as they are currently, doing so can save you money long-term while lowering your monthly cash outflow now.
While that particular tactic requires a fair amount of effort on your part, there are other low-hanging fruits to snatch that can neutralize the 2013 tax increase without dramatically changing your lifestyle.
Ramit Sethi, author of The New York Times best seller I Will Teach You To Be Rich, offers tips for reducing insurance and phone bills and getting out from under bank fees. Life Hacker created an overview of bills that Sethi recommends attacking and provides phone numbers for the major bill-issuing companies with a notation about how easy it is to accomplish your mission. Cable, for example, is deemed very easy, and several consumers have found that simply calling the provider and asking to lower the fee (or sometimes prodding with a threat to switch to a competitor) is enough to cut the monthly charge by $30 or more a month. One consumer reports that following through on this tip wound up saving him $40 a month, and along with other small changes his expenses have dropped by $720 a year. That's almost enough to cover three quarters of the 2013 tax increase on a $50,000 annual income.
A second approach to offsetting the 2013 tax increase without much pain is to adjust your tax withholding. If you generally receive a refund after filing your tax return, consider what's changed in your life since you last filled out a W-4. If you can add another exemption (new addition to the family, perhaps) your withholding will be less and your refund may disappear -- but that money was kind of a free loan to the government, anyway. The resulting increase in your paycheck may not cover the entire two percent payroll tax increase, but it will help minimize the pain.
A third option involves a slight modification to your shopping strategy: Buy store brands instead of name brands. And don't even think about mistaking private label products for inferior merchandise. A Consumer Reports article from 2010 points out that many big-name producers, such as Sara Lee, make the store-branded products as well. McCormick, for example, is a well-known name when it comes to herbs and spices and the largest producer of private label seasonings in North America. A recent Cheapism review also found that some generic cleaning products work as well as the leading name brands and cost less. According to Consumer Reports, the difference in store versus name brand products saves consumers an average of 30 percent, which is more than enough to cover the average 2013 tax increase for folks earning $50,000 a year.