Jacksonville, FL - Despite what action Congress takes on income tax cuts as part of a fiscal cliff deal, your taxes will still be going up.
A 2% Social Security payroll tax cut will expire, after the Senate failed to include it in its plan approved very early Tuesday morning. That will now be shifted back to workers, so the average person earning $50,000 a year will pay roughly $80 a month more in taxes. The tax applies on the first $110,000 of your salary.
“This is simply a game- a tragic game- that is being played. The American people happen to be the pawns,” says WOKV’s Financial Expert Hank Madden.
Madden says there are a few things you can do to take some of the sting off the higher bill.
“Adjust your withholdings so that you don’t get as large of a refund to compensate for the increase in taxes that will be taken out,” he says.
You can also try to take advantage of exemptions you may not have looked at before.
“The fact that you use the various exemptions that doesn’t make you an evil person- they were there for you,” he says.
WOKV’s Consumer Warrior Clark Howard has some more basic tips to help you. He says the problem here is that you have to start thinking about the little expenditures.
“The stop here or there at the convenience store or at Starbucks- those things do make a difference,” Howard says.
While he says the hike will be difficult for families living on a budget, he says most will be able to get away with these “nips and tucks”. Brewing your own coffee at home and bringing a brown bag lunch are a few more suggestions. He also challenges you to step back and assess your monthly bills.
“Do you still have a home phone, and if you do when is the last time you picked it up and called somebody on it?”
His family cut out their cable package, using instead internet TV/movie providers. That switch alone save nearly the $80 most will now pay.
Howard says the spending cuts that most Americans will now make could have a residual effect on economy, but that would only be short-lived.
“The economy has gotten stronger enough that I think we’ll ride right through that,” he says.
When the tax cut was first designed, it was supposed to help the economy which, as Howard describes it, was on “life support”. Now it has drawn bi-partisan criticism for weakening Social Security.
Let us know what the higher bill will mean for you by weighing in on our Facebook and Twitter. You can also tune in to more financial talk with Clark Howard weeknights at 9 PM and Hank Madden on Smart Money beginning at 10 AM on Saturday.