When Congress passed the Tax Hike Prevention Act earlier this year, it included an economic stimulus in the form of a payroll tax holiday. As Leigh Mutert, CPA explained in our podcast interview, the payroll tax will be reduced in 2011 from 6.2% to 4.2%. As a result, paychecks will be a little more than 2% higher than they would have been without the payroll tax holiday. That could result in an extra $1,300 for an average project manager or $2,000 for a senior level programmer.
Unlike the stimulus checks sent out from the government earlier in this century, taxpayers won’t receive a lump sum. The payroll tax holiday is a benefit that employees will see in a small amount each pay period. The best bet, if you want to use this money to spend on one particular purchase, is to create an automated transfer of 2% of your paycheck from the bank account that receives your paycheck to another account to hold the savings. Otherwise, this benefit will most likely be absorbed into your everyday spending. The latter situation is generally the goal of an economic stimulus plan, but everyone is free to do what he or she wishes with the savings.
What are your suggestions for using this extra money? Here are some of mine.
Indulge in your hobbies and interests
- Take a class offered at a local college.
- Find a private tutor who can help you excel with your hobby.
- Travel and attend a seminar to learn more and meet interesting people.
- Advertise your hobby as a business and attract clients.
- Support a charity or non-profit organization focusing on your interests.
Improve your personal finances
- Establish your emergency fund.
- Pay off your credit card debt.
- Make an extra mortgage payment.
- Open a high-yield savings account.
- Invest in an index mutual fund.
Around the house
- Upgrade to energy-efficient appliances.
- Upgrade your entertainment system.
- Upgrade your wardrobe.
- Upgrade your electrical system from fuses to a circuit breaker.
- Redecorate the room in which you spend most of your time.
Have some fun
- Explore a local city in depth.
- Travel to a location you’ve never visited.
- Take your family to a major amusement park or resort.
- Buy a new computer or gaming system.
- Train for and earn your pilot’s license.
Add your own suggestions below.
Published or updated December 26, 2010.