STATE—September marks the sixth month of President Obama’s economic stimulus tax credit boosting American paychecks. While the credit put more money directly into people’s pockets, it may have some unintended consequences. Many may see a big tax bill come April 15, 2010.
“The stimulus credit may have done too good a job of adding money to the paychecks of some,” said Dan Maddux, executive director of the American Payroll Association. “If you’re working two jobs, married with both spouses working, or receive money from a pension, talk to your payroll department to ensure you’re not underpaying your taxes.”
A strong understanding of your paycheck can help you avoid problems like the economic stimulus dilemma, and can put even more money in your pocket. As we celebrate payday this National Payroll Week, Sept. 7-11, the American Payroll Association offers five tips to help you fatten your wallet today and lower your tax burden.
1. Give yourself an instant raise. Many people look forward to a big tax refund, but they are actually being overtaxed each payday. Last year’s average tax refund of $2,345 equals an almost $200 monthly overpayment of taxes. To add that money back into your paycheck instantly, adjust your W-4 form.
2. Save up to 35 percent on everyday expenses. Pay for expenses like child daycare, summer camp, contact lenses, doctor’s visits, even aspirin and Band Aids with Flexible Spending Accounts. These tax-advantaged free savings programs can save you a bundle and significantly lower your tax bill.
3. Save on your office commute. Commutes can be expensive, but Transportation Reimbursement Incentive Programs (TRIP) can save you a bundle on train fares, bus passes, and parking.
4. Automatic savings via direct deposit – direct deposit is an easy way to budget and maximize savings. Put your payroll department to work for you by using direct deposit to fund separate accounts for current expenses, long-term savings, and vacation planning.
5. Don’t pass up free 401(k) money – not only are 401(k) plans an excellent way to save for retirement but money put into the accounts isn’t taxed. Many companies match a percentage of 401(k) contributions so if you’re not contributing you’re giving up “free money.”
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