If you’ve ever spoken to a financial planner, he or she may discuss the topic of mental accounting. Most of us manage our budgets this way: We already know where most of our paycheck is going before we even receive it. When the check on the 15th arrives, it’s allocated to the cable bill, or the first-of-the-month check goes straight to the mortgage payment, for instance. Given that most of us have this method of managing money and we have little room in the budget for any additions, we rely on every cent of our paychecks.
Given that we are seemingly going to continue with some of the same spending habits, perhaps we should work toward increasing our take-home earnings. A large portion of our paycheck goes to federal, state, and local income taxes, as well as Social Security and medical insurance. Achieving the proper balance can increase your pay throughout the year while still providing enough health coverage and preventing a hefty bill during tax season. Here are three tips to increase your paycheck:
1.Maximize allowances
Over-withholding occurs when the information you place on your W4 is not an accurate reflection of your true household and financial situation. Most of us short ourselves and allow the government to take too much out of our pay. When you have too much withholding coming out of your pay, you are basically loaning money to the government with zero interest. Data published by the University of Chicago indicates that each year, around 100 million taxpayers receive refunds as a result of over-withholding. On average, each taxpayer overpays around 7% of their adjusted gross income to Uncle Sam.
Don’t think this sounds like much of a difference? If you earn the median household income of around $51,000, the monthly value of each withholding allowance is estimated at $82, according to Intuit. Therefore, if you are claiming one when you should be claiming four allowances, you are looking at a difference of around $250 per month, or around $125 per paycheck.
2. Time at work
Many companies are willing to work with employees on flexible time. Now known as Volunteer Time Off (VTO) it is particularly common in call centers and in customer service industries.
The problem is that for every hour of VTO you elect to take, it is one less hour of pay you receive. If your company offers it on a consistent basis, these hours can really add up to a significant portion of your pay. Resisting the temptation to take off “extra” hours to minimize the impact it can have on your paycheck.
On the other hand, VTO does work both ways – often, companies need employees to work extra time in busy seasons or when staffing shortages occur. This can be a great way to add some income to your paycheck. Think about this – and extra hour each day gets you five extra hours per week. This may not sound like a lot, but an additional 10 hours per pay period adds up each week!
3. Health insurance
Each pay period, many of us have money deducted for medical, dental, life, and vision coverage. These are substantial costs and they reduce take-home pay. Around 150 million Americans have health coverage through their jobs, and they pay an average of around $100 per month for individual coverage and around $380 for family coverage,according to Kaiser. As we all know, this cost doesn’t cover all of our healthcare needs, and when you add in deductibles and co-pays, medical costs rise substantially.
To decrease the amount of money coming out of your paycheck, evaluate the plan options your employer provides versus the options your spouse’s employer may provide. Rates and worker contributions depend on the size of the business, the earnings of other workers, and the type of plan. For instance, workers in small firms generally pay less for single coverage than workers in larger firms. Premiums also tend to be higher in firms where there’s a large percentage of earners who make less than $23,000. You may have the option to get coverage at a better rate from your spouse’s employer, or vice versa.
If you or your clients have any tax issues or problems with the IRS/State or other federal tax problems, please feel free to contact me directly at (909) 570-1103 or by email at Carlos@HealthcareTaxadvisor.com
Carlos Samaniego, EA
Enrolled Agent
Licensed by The Department of Treasury to represent taxpayers
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1255 W Colton Ave, #535
Redlands, CA 92374
Ph. (909)570-1103
Fax (909)586-9190
