On January 1st all wage earners will be getting a 2% raise, thanks to the recently passed tax package. That’s because the amount you usually contribute to the Social Security system, 6.2% of your first $106,800 of wages, is reduced to 4.2% for 2011. (If you are self-employed, you still get only a 2% reduction even though you pay 12.4%.) That 2% savings could be as much as $2,136 over the course of the year.
A simple fiscally-responsible New Years resolution would be to take that extra money and put it to good use. Here’s how:
- Increase the amount you pay towards your credit card balances
- Increase your 401(k) or 403(b) contribution
- Deposit it directly into your savings or investment account
Remember this change is good for 2011 only. If you decide to increase your spending you will have to make an adjustment down on Jan 1, 2012 as your Social Security withholding reverts back to 6.2%. It’s better to use this money towards a financial goal and keep your spending at its current level.