This tip comes from Jamie W., a CPA in Alabama:
Although tax law is not the most exciting thing to blog about, it is one thing that affects every American, every single dollar we earn, and every household budget.
Congress recently enacted legislation that reduces the amount of Social Security tax an employee pays from 6.2% to 4.2%. This change will result in a paycheck increase of 2% for most wage earners in the United States beginning in January of 2011.
For example, if you earn $40,000 per year, you will save $800 in payroll taxes during the year. Although the change is not a huge tax break, it provides an opportunity for many of us to make smart money decisions.
This tax break is unusual in that it is not a lump sum that you receive in the form of a refund at tax time. Instead, your payroll taxes are lowered on each paycheck, thus increasing your take home pay. It could be very easy to spend this money without a purpose. However, you can make this money work for you.
- Automatically direct 2% of each paycheck into a savings account. These savings could be used to increase your emergency fund or could be saved with a specific purpose in mind.
- Apply 2% of each paycheck to debt reduction. Multiple small payments through the year will put a dent in your debt by the end of 2011.
- Budget with a purpose. If there is an area in which you have been struggling financially, direct this 2% of your earnings to that budget line. This will give you breathing room and allow the money to be spent intentionally.

















