Make Tax Credit Extension Work for You

Tips to Make That Little Extra Money Go a Long Way

Date: January 12, 2011

Contact: Paul Golden 303-224-3514, [email protected]

DENVER—How would you like a bonus to kick off the New Year? Recent federal tax legislation signed by President Barack Obama extended some tax cuts that likely will put a little extra money in your paycheck. There are several provisions in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that was signed into law on December 17, 2010, but there are two specific items that may impact your net pay as a result of the recent change:

  • A temporary 2 percent reduction in the employee portion of Social Security tax—or FICA (Federal Insurance Contributions Act) payroll tax—from the current 6.2 percent to 4.2 percent for one year.

  • A two-year extension of all current tax rates, with the exception of the Making Work Pay Tax Credit provision, which was dropped in favor of a one-year, 2-percent reduction in employee Social Security payroll tax noted above.

These provisions are intended to provide relief to more than 100 million middle-class families by preventing an annual tax increase of over $2,000 for the average family. For example, a worker with an income of about $50,000 can expect to get a take home pay boost of $1,000 over the course of the year, which comes out to approximately $83 per month. People earning higher salaries, can expect to see a proportionately larger increase in their pay. Although this seems like a relatively small amount, you have several choices to make that extra $80 a month go a long way.

“Any additional income, no matter how small it may seem, can make an impact on how you manage and direct your money. The key is planning,” says Brent Neiser, CFP® and director of Strategic Programs and Alliances for the National Endowment for Financial Education (NEFE). “Make this extra money count toward your goals. But put a little thought into this and consider what you need to take care of that you haven’t been able to address.”

NEFE suggests these six tips for using that extra money wisely:

  1. Build up an emergency fund. Tuck that extra money away into savings. Even a modest amount—as little as $500—can help soften the blow of typical unexpected expenses. If you already have an emergency fund, give yourself an extra boost toward reaching that three-to-six-month-living-expenses recommendation. If you have yet to establish a plan, learn how you can maximize your savings.

  2. Pay down credit card debt. Is high-interest credit card debt weighing you down? Use your extra money each month to make higher payments toward that alarming balance. First, attack the card with the highest interest rate. If you can pay off the card in full, that’s even better. For more tips on dealing with debt, click here.

  3. Avoid the holiday shopping hangover in 2011. Use the money to establish a holiday savings account for your gift purchases this year. After all, this is an expense that you know you will have, so set aside a little each month starting now. Be sure to put this money in an account separate from your other savings.

  4. Be good to your car and your home. Use your additional money to help out with costly, but necessary, maintenance and repairs to your home or vehicle. Replace that leaky roof or buy new tires for your car.

  5. Invest in a retirement plan. Enhance your future now by using your money to invest in a tax-deferred retirement plan. If you have an Individual Retirement Account (IRA), boost your contribution amount. (Be sure you understand your annual contribution limits.) If you don’t have a retirement account, click here for tips on making a major purchase.

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Contacts

  • Paul Golden

    Media Relations Director

    Direct: 303-224-3514
    Cell: 303-918-3620
    [email protected]

  • Patricia (Pat) Seaman

    Senior Director of Marketing and Communications

    Direct: 303-224-3538
    [email protected]