Jan 27 2011

How will you use your 2% raise this year?

Congress has decided to give many Americans a 2% “raise,” but for 2011 only.

The Tax Relief Act of 2011 is reducing the amount of Social Security tax withheld from paychecks, for the first $106,800 in wages. Previously, it was 6.4% and for this year it will be 4.4%. Essentially, your net paycheck will be 2% more.

At first, I thought only my husband’s paycheck would be affected, but turns out freelancers have a tax break, too.

The self-employment tax will see a temporary reduction from 15.3% to 13.3%.

Since these tax breaks are temporary, I think it’s a good idea to have a plan for that spare 2% rather than absorb it into your regular budget. Otherwise, come 2012, it’ll be harder to adjust to a smaller paycheck.

This could be a good opportunity to boost your debt snowball, pad your savings account, contribute to a college savings account, or contribute a bit more to your retirement account.

Calculate the exact dollar figure you’ll be getting extra this year, and put it as an item in your budget. Pay yourself that amount with each paycheck and allocate it however works best for your family. Just don’t fritter it away!

How will you use your 2% raise this year? We’re putting ours in savings.

For more: The Tax Relief Act of 2011 provisions on About.com

Ideas for your Social Security Tax Break at PTMoney



2 Responses to “How will you use your 2% raise this year?”

  1. No plans! Goes straight to savings!
    Moneycone´s last post ..Buying Stocks Neglect This Metric At Your Own Peril!

  2. I’m upping my retirement contribution. If I followed Dave Ramsey exactly I shouldn’t be contributing to my retirement at all, but since I’m not sure how much longer I’ll be working I upped it to 6.5%. Still not a lot and I’d like to do more, but I feel good about contributing something–plus I have 3% that my employer pays into a retirement account for me.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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