What are you cutting in your budget to absorb the Payroll Tax increase?

[Disneefun]

This works unless you make more than $113,700. Only the first $113,700 is taxed, so if you make more than that, you'll have to factor that in. --Katie

Don't forget that if you're making any 401K contributions you take those off first, since that is all pretax. So in that case you'd multiply your salary by the % you're putting in a 401k and then subtract that number from your salary. That new number is what you multiply times .02 and then divide by the number of paychecks you get.

Example. You make 50k per year, but put 10% into a 401k. That's 5K in 401k contributions, so your taxable income is 45K. Now, 45K times .02 is 900. Assuming you have 26 paychecks a year, you'd "lose" about $35 per check.

 

[eliza61]

So I guess that means you are cutting back on discretionary spending and on your 401K, right?

Nope, my discretionary spending is way less than my discretionary budget. so for example, my play money is 200 bucks month and I generally only play with 100 bucks, , I don't have to cut any thing, that 2% won't effect me. Yes it will be gone but it won't change any thing in my budget. So I guess it depends on what you mean by "CUT" I also have no plans on reducing my 401k. Actually since Im over 50 I can add an extra 4000 bucks to an IRA for make up. I think it's around 4k

 

[goodfood4ursoul]

My husband and I are public employees and did not experience the 2% temporary cut in the social security tax (we pay into a separate state retirement system not social security). Never see a peep about not all employees experienced the temporary reduction.

So you do not pay into SS at all?
I never knew that was an option...
So you didn't see a temporary reduction because you have a permanent 100% reduction, if I understand the situation- perhaps I misunderstood.

Both DH and I are public employees too.
Not only do we pay into SS we also have a 5% mandatory payment into the state retirement system.

That being said, we have never relied on the government to make us happy.
We are the most modest and humbly paid of public servants but we took these jobs to make a positive difference, not because we thought we'd get rich...

We pack lunches, have never had cable or satellite, no smart phones, no netflix, don't go to movies, drive old cars, wear good will clothing.
We work our small farm in our "free" time (lol- free time!) as an investment in our future.
Going to church (our church is fun!) and a small lunch out afterward is the highlight of our week

I very much doubt I'll see a penny of Social Security, and I'm not sure that even my state retirement (or private 401K) is safe from the greedy grasp of the government, so we have an alternate plan that is a little more hands-on.

A few years from now, 150 pecan trees will produce a modest income, when we are in our 50s and 60's and beyond, so that perhaps we won't have to work a public job until we die, and we won't have to rely on the government that cannot pass a budget in 3 years.

I can see that on this thread I am in the company of people who are fiscally responsible, who pay their bills, manage their resources wisely and plan ahead for the future.

You guys should run for office- I would vote for you.
I just wish our representatives in Washington DC would do the same for our country instead of ever borrowing more and spending more.

Meanwhile, it's my deeply held belief that independence and personal responsibility, careful planning and self-control is the best course of action for finances and families in these times.

Be blessed.

 

[The Iron Giant]

Nope, my discretionary spending is way less than my discretionary budget. so for example, my play money is 200 bucks month and I generally only play with 100 bucks, , I don't have to cut any thing, that 2% won't effect me. Yes it will be gone but it won't change any thing in my budget. So I guess it depends on what you mean by "CUT" I also have no plans on reducing my 401k. Actually since Im over 50 I can add an extra 4000 bucks to an IRA for make up. I think it's around 4k

But if you're not going to reduce your 401K, don't you have to pull money from somewhere else to make up for the money that was previously coming from the SS tax cut?

 

[eliza61]

But if you're not going to reduce your 401K, don't you have to pull money from somewhere else to make up for the money that was previously coming from the SS tax cut?

Aaah I see what you are saying. I think the misconnect comes from the word "cut".


So when the ss tax break came we did not budget that money into any thing. some times I put it in my discretionary spending, some times I bumped up my 401K. Most of the time it sat in our savings account. So for me it's more a matter of simply moving or redesignating funds.

So yes, technically the money will be gone. So I guess when I think of the word "cut" I think of a loss of some thing (less play money at disney or things like that).

As a general rule I don't budget any of my spending areas (food, utilites, clothing, medicine) so tight where the loss of the 2% will cause me to "cut" any thing.

Now of course there are exceptions, there was one year where all my appliances broke, my airconditioner went and we needed a new roof. so after doing all that our emergency fund was shot to heck and then we cut back on every thing except breathing to pump it back up.

So in answer to your question. Yes definitely the money will be gone. Do I have to "make it up" No, I do not because I never spent it in the first place.


Even when gas and groceries went up, we were careful to never include that 2% in our budget, most of it is sitting in my "gift" savings account or in my 401K. so yes my gift savings account will see a little less this year.

Also I've been lucky that I've gotten a couple of raises (~2.8-3%) So once again my salary went up and I never entered that extra money into my budget.

 

[cluvsdisney]

Ever since they cut the SS tax, I deferred the extra 2% to my retirement plan so if I find we're really struggling, I can take it back there but there are extras we can cut that will make up the difference. The extras being craft related for me or take out/eating out for both of us. I think it will be fine and luckily painless once we get used to having a smaller paycheck.

 

[The Iron Giant]

So you do not pay into SS at all?
I never knew that was an option...
So you didn't see a temporary reduction because you have a permanent 100% reduction, if I understand the situation- perhaps I misunderstood.

Both DH and I are public employees too.
Not only do we pay into SS we also have a 5% mandatory payment into the state retirement system.

I'm a public employee here in NJ and I don't pay into social security either. I pay into a pension system and also contribute extra into a 457 retirement plan.

 

[ttfn3]

So you do not pay into SS at all? I never knew that was an option...

As public employees in Ohio, we do not pay into social security. We do pay 10% of our income into our State Retirement System. I also pay into medicare.

 

[Zhoen]

I am lucky, I suppose, to have gotten a raise on the first that just about balances out the 2% (I'll actually come out *very* slightly ahead,) which is a good thing, because I am one of those (apparently unworthy) few who HAS used every cent of my income all along (no more credit card balances, hooray!)... and WOULD have had to cut back somewhere...

-Might have meant we would not be making huge payments to get the house and second car paid off early

-Might have meant cancelling our next vacation (in 2 years,) because, yes, it is that much of a difference for me, and no, neither Hubs or I break that $113k barrier

- Might have meant putting less towards helping my widowed relative with 4 children, one of whom is disabled and her household... in fact, come to think of it, my SS increase (or, more correctly, return-to-normal) is almost EXACTLY what I just loaded onto the kids' school lunch accounts an hour ago... (Don't ask me how a widow with 4 kids who has to work 2 jobs just to keep the heat on doesn't qualify for free or reduced lunches... but she doesn't...) Maybe I would have cut-off the hungry children...

So, my cutback is that the SS recipients ate my raise this year, hopefully with a nice wine and by candlelight. So my standard of living will not improve with my raise, but rather be maintained (rising prices on other commodities notwithstanding.) Whatever is left after the SSA is done with us will be eaten up by local tax increases that will trickle in through our mortgage escrow... "Hey, it's only $20 more/mo for the right to sit on your own land and get your trash picked up half as often as we used to..." That's the one that bugs me... less services, poorer schools= higher tax rates? Huh?

Like other posters, I am not counting on Social Security (in its current form) to be there for me when my time comes, so being prepared "the old fashioned way" for retirement is the prudent course. I am under no illusion that what I have put in since I was 15 will be there when (if) I reach retirement age... whatever that is when they're done moving the goal posts.

 

[Shelly F - Ohio]

As public employees in Ohio, we do not pay into social security. We do pay 10% of our income into our State Retirement System. I also pay into medicare.

So you do not pay into SS at all?
I never knew that was an option...
is the best course of action for finances and families in these times.

Before you run off to your payroll dept and ask to opt out of paying into SS please understand that paying into SS is not an option available to those of us who are public employees. Which also means we can not draw SS benefits. We have to pay into a dedicated retirment plan for public employees (OPERS).

 

[Sagginit]

There are probably a lot of people like our DS who had never worked [a full-time job] yet before 1-1-2011 who just started earning an income and never knew the 6.2% rate existed, and in fact were taken by surprise of the reverted rate.

To the OP, we will be foregoing the set-aside of the FICA tax holiday money that we began when the holiday did. It has been ear-marked for DD's wedding funds, so; sorry DD, it's over.

this is true. I started my current job about 2 years ago so in theory for me it feels more like I am losing a chunk of my paycheck than reverting back to the old budget. I will be fine because I am "cutting" back on savings and extra money, but I have a friend who just finally got a raise after years at her job, and to now have the money disappear out of her paycheck a few weeks later almost cancels out her raise which sucks.

I think it would hurt less if you felt like long term you were going to benefit but my generation can't even plan on social security being there. I read an amazing post about the current fiscal cliff and they took off 8 zeros and changed it to a household budget, it really put it in perspective and in a way they were right that you can't run a single house let alone a country with that much debt.

 

[ilovemk76]

Don't forget that if you're making any 401K contributions you take those off first, since that is all pretax. So in that case you'd multiply your salary by the % you're putting in a 401k and then subtract that number from your salary. That new number is what you multiply times .02 and then divide by the number of paychecks you get.

Example. You make 50k per year, but put 10% into a 401k. That's 5K in 401k contributions, so your taxable income is 45K. Now, 45K times .02 is 900. Assuming you have 26 paychecks a year, you'd "lose" about $35 per check.

This is incorrect SS and Medicare taxes are taken out on your 401K contribution. Only Federal is not. State and local taxes can still tax the 401K contributions. It varies by location.

 

[Jen_in_NH]

As public employees in Ohio, we do not pay into social security. We do pay 10% of our income into our State Retirement System. I also pay into medicare.

Here in NH, certain public employees don't pay in - firefighters and police. They pay higher percentages into state retirement. Other public employees, like DOT folks, teachers, and such, do pay into both.


So as far as what we'll notice for a change, not much. My DH is a firefighter, so no SS taken out. I was a public employee, so did see the SS decrease, but just took a new job with a significant raise, so going back to the old SS rates isn't something I'll notice, as I'm still working out what my actual take home will be.

 

[edk35]

Hey I have a question..with these new changes...I wonder if my husband's pay will change as far as them not taking SS out towards the end of the year. Each year for the past several....we will end up getting the amt. they were taking out in SS..... back in his pay check every two weeks. It's because he has paid in the full amt. I guess for the year. This usually starts in Oct. so we get a nice chunk of change for the holidays which is nice. So...will this disappear now?

 

[RitaE]

Hey I have a question..with these new changes...I wonder if my husband's pay will change as far as them not taking SS out towards the end of the year. Each year for the past several....we will end up getting the amt. they were taking out in SS..... back in his pay check every two weeks. It's because he has paid in the full amt. I guess for the year. This usually starts in Oct. so we get a nice chunk of change for the holidays which is nice. So...will this disappear now?

Yes, but the ceiling has gone up a little for 2013. I think it is around 113k now.
So he'll pay Social Security until he reaches that amount of gross salary, then he won't pay for the rest of the year.

We are another who the annual raise amount will mostly be wiped out by the Social Security tax. I'm hoping that the raise will cover tax increase and health insurance premium increases - I'll see next week.

We have cut quite a bit out of our budgets recently though because I'm trying to save for a house remodel.

Places I've cut:

Sold a car and dropped the insurance. This is going to hurt next summer when the college student is home and I have to share my car with him.

Put house and auto insurance out for bid (still working on this one)

Called Direct TV and threatened to cancel, getting a discount. Removed Direct TV boxes from every TV except the one in the main living room.

Returned rented modem to Comcast and bought a cheap used one (hope it lasts)

Dropped one data plan from our cell phone plan. Went with a regular flip phone that only texts

Moved house phone to Google Voice (free after equipment purchases)

We didn't take one annual trip into Downtown Chicago in December.

Dropped our Christmas budget by about $1000.

Trying to cut about $200 a month from our Grocery Bills but I suck at this.

 

[Jenny3]

We would have been okay by cutting out things like eating out and non-necessary expenses and couponing more. But today, DH got notice that his employer is cutting pay by 5% across the board and taking away all paid sick days. Now I'm worried. It's like a double whammy

 

[Minnesota!]

We aren't really cutting anything. It was extra discretionary money....used it once in a while and some months it just rolled over. We try and live as far below our means as possible so that these things don't put us in the poor house. We have BTDT and it's terrifying, honestly. Do we eat or put money in the car to get to work? Never, ever again....

My raise each year is between 5 and 6% and DH is up for a nice one, too. So it offsets this, anyway. *knock on wood*

 

[tyniknate]

Surprise or not, it's happening, and every working american is going to have to cut back somewhere. Whether you figured out where that was months ago, or you're figuring out that now, it's a fact. The thread didn't ask if people were surprised, it asked where people are cutting back. --Katie

 

[onescgirl]

I have not received a raise in several years. Cost of living keeps going up, but not my paycheck. Now, I will be receiving less.
One of my cutbacks in spending is not have my hair professionally highlighted anymore. My sister is doing the same thing. Our hairdresser hated hearing this as we were both regular clients of hers!
I am planning on making a lot more cuts as I don't foresee my paycheck increasing anytime soon.

 

[cluvsdisney]

We would have been okay by cutting out things like eating out and non-necessary expenses and couponing more. But today, DH got notice that his employer is cutting pay by 5% across the board and taking away all paid sick days. Now I'm worried. It's like a double whammy

that sux! I am so sorry.