Monday, December 31, 2018

Read this if you made more than $128,400 in 2018

In 2018, once your income subject to Social Security tax hit $128,400 (this is usually higher than your income subject to Federal tax, due to various exclusions such as 401k contributions that are subject to SS tax but not income tax) they stopped taking Social Security tax out of your paycheck.

This results in, sometime late in the year (the more you make the sooner it happens) a de facto 6.2% raise in your paycheck (which is effectively tax free). Many people don't notice it. Others notice it, but don't realize what it is.

The important thing to know is:

Beginning in January they start taking it out again.
So goodbye to that raise!

Realizing what's happening and managing it can help avoid a fiscal shock in January (just when the holiday bills are coming due as well). I advise my clients in this income range to pay attention to this and use the money "off-budget". Meaning to save it, invest it, or use for one-time expenditures like a vacation or a home remodel.

People unconsciously raise their standard of living as their income increases. Understanding how this happens and taking conscious control of it is one of the keys to financial success. This example is just one area where it matters.

Take control.
Understand your income and expenditures.
Be aware of "found" money like this.

And understand that you are about to take a "pay cut."

No comments:

Post a Comment