How to survive new tax hike
Updated On: Mar 06 2013 05:44:47 PM CST
As families see the 2 percent payroll tax increase take a hit on their budgets, financial experts are offering creative ways to maximize your bucks.
Husband and wife Jackson and Iris are just one couple affected by the recent Federal Insurance Contributions Act tax increase.
"I pay the bills, she handles the budget,” said Jackson.
Iris said covering all of their costs was hard enough before the tax increase.
"We both work full time. What more can you do? What more could you possibly, humanly, do to get ahead?" asked Iris.
The FICA tax hike takes an additional $25 from her paycheck. Meanwhile, her husband loses $33 a paycheck. The couple said every dollar adds up fast.
"So you get to the end of the pay period and you have to pull money from somewhere from savings," said Iris.
The family’s budget for food is supposed to be $450 every two weeks, but they never come close to that figure. By the time they deduct medical expenses for their autistic son and school costs for their daughter, their budget is on the brink.
Certified financial planner Nancy Hecht reviewed the family's budget and got down to the nitty-gritty calculations. It turns out, Iris' tax hike delivers a $300 cut in their budget, 17 percent in spendable income.
"They are the average middle class American family and an extra $300 out of their pocket, it's a deal-breaker for some people," said Hecht.
Jackson's FICA tax increase makes it worse. Between the husband and wife, the family loses $1,150 in spendable cash.
Hecht said one solution is to add to your pretax savings using a 401-K or other plans.
"It is going to reduce what you pay in FICA. More money in your pocket, less money in the federal government’s pocket," said Hecht.
US News and World Report suggests consumers scale back.
Refinancing your home, shopping home and auto insurance policies for lower premiums, and eliminating a monthly expense like premium cable or health club memberships can quickly add up in savings.
Experts suggest finding ways to save on routine expenses. For instance, coupons can help ease grocery bills by 10 percent.
After talking with the financial advisor, Jackson and Iris decided to get creative and start a company to bring in additional cash flow.