How We Avoided A Smaller Tax Refund (And What We’re Doing With It)

Have you done your 2018 taxes yet?  Are you one of the unfortunate people who are seeing a smaller tax refund this year?  If you are, I hope that it won’t impact your finances in a negative way.  Thankfully, we were able to avoid a smaller tax refund this year.

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How We Avoided A Smaller Tax Refund

When we got our tax forms back, we were happy to see that we’re getting a little more back than last year.  While many people think getting any sort of refund is bad thing, I actually welcome a refund.  We don’t count on the refund.  For us, it’s just nice to have money that isn’t a temptation to spend during the year.  The removal of that temptation is worth the small interest we’re foregoing.

So, how did we avoid a smaller refund? There were two main reasons.

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Was The Payroll Tax Holiday A Good Idea?

By now, most people have probably received their first paycheck of the year and have seen the effect of the expiration of the payroll tax holiday.  As part of the economic stimulus packages during the throes of the Great Recession, the powers that be decided that giving a temporary break would help the economy.  Most Americans contribute 6.2% of their paycheck toward the Social Security Fund, and this was cut to 4.2% throughout 2011.

For someone making $52,000 per year, this resulted in additional take home pay of roughly $1,000 per year, with the hope being that Americans would spend that money, injecting spending into the economy.  Spending which, at that point, had been dramatically slowed.

At the end of 2011, the payroll tax holiday was extended for an additional 12 months, so Americans now had two years of extra spending money.

This is good and bad.

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Debt Deal Fallout: Start Preparing For Your 2% Pay Cut

By now, everybody is aware that the debt deal passed.  I always figured it would and that it would take until the last minute.  It’s just how things get done, especially in today’s ultra-partisan government.

One of the things that it included means that anybody that works should be prepared for a 2% pay cut starting next year.

How’s that?

Simple.  The FICA payroll tax holiday, where taxes were rolled back by 2% for 2011, have virtually no chance of being renewed under the agreed terms.  Although it was only a one year agreement originally, the hope was that it would be able to be extended for at least another year (hmm, just up until elections, how convenient would that have been?).

Read moreDebt Deal Fallout: Start Preparing For Your 2% Pay Cut