With the passage of the huge “stimulus” bill a couple weeks ago, one of the things that has been talked quite a bit about by both the media and the President is the reduction in the taxes that are taken out of our paychecks. Some $13 or so dollars on average will be left in our paychecks each week for us to spend, spend, spend. Isn’t that great? (can you taste the sarcasm?)
What they aren’t telling you is that it isn’t really a reduction. Sure, they’ll be taking less out of each paycheck. But they didn’t reduce the tax bracket rates any. All they’ve done is reduce the percentage of your wages that will be withheld from your paycheck. You’ll still owe the same amount on your taxes at the end of the year.
Here’s how it will work. If you got a return this year, and are planning on getting one next year, it will be reduced by the extra taxes that didn’t get taken out of your check. $13 less withholding dollars means $13 (or more) less refund. Where it could really hurt people is where the person is already expecting to send a check with their tax forms. Their check will have to be much bigger because of all this.
Now, to avoid all of this, you could instruct your payroll department to take that $13/week out anyways. You could adjust your withholding on your W-4 so that more is taken out. Or you could take that $13/month and stuff it away in a shoebox so you’ll still have it to pay Uncle Sam with come next April 15.
Any way you shake it, it comes down to a publicity stunt to make all the other needless spending in the bill look better. It’s the proverbial spoonful of sugar to make a whole lot of pork go down.
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.
You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.
Wow… $13? Seriously? Ohhhh the possibilities!