Tuesday, January 4, 2011, AM | Leave Comment
New laws about individuals taxes take effect in the new year. First off, up until now, social security tax was taken out your paycheck at the rate of 6.2%. Now it is going to be 4.2%. That’s a whole 2% more money you would be taking home. The maximum income to be eligible for social security tax deduction is $106,800. Of course, beyond that there is no social security tax. Medicare is different. The previous rate has been left alone.
Individually, the overall amount of increased take-home pay depends on income. If you are making at least $106,800, you are among the top 4% of Americans who are making more than $104,000.
Experts figure out the maximum taxpayers would save in paycheck is $41 a week. They would save it every week for a total of $2,136 a year. That’s 2% of $106,800. However, the government would want you to spend it right away. As we all know, almost 70% of the economy is dependent on consumer spending.
You do the Math for your own income. The government is hoping folks, who make more than $106,800 after saving $2,136 for the year, would spend the whole $41 every week. The more money you make beyond the magic number, you would be tempted to spend the extra every week and you would not feel a thing in your finances, no sting to give you pain.
If you spend the maximum $41 and your personal finances require you to save or pay a part of your debt with it, it is entirely up to you. Don’t listen to anybody. It’s your finances. You know best. Spend it or save it is entirely up to you.
If you make less than the maximum or a lot less, then experts advise you to save no matter how small amount it comes out to be.
If you remember, stimulus checks were sent to most working Americans in lump sums of hundreds of dollars. Here, the payroll tax reduction is made in every paycheck.
Given how late in the year the law came about, it may take employers a couple of pay periods to get everything working as it should.
The tax package Obama signed also includes provisions to expand the child tax credit, college tuition tax credits, relief from the “marriage penalty,” an extension of investment tax rates and an extension of jobless benefits.
In a Nutshell
If you are in a position to make $106,800 so you can save $41 a week, I don’t think you give a shit what happens one way or another. For people making a lot less than that, let’s say $30,000, they would be getting $11.50 a week extra which is not bad either. Think of it as money that without the new law you would not have received.