90% of Us Are About to Get a Pay Bump. Here’s Why We’re Not Celebrating Yet
That’s cool, right?
Your paycheck may, indeed, be bigger, but don’t run out and splurge on that Crafting With Cat Hair book you’ve been eyeballing on Amazon.
Your paycheck may be bigger, but it may also be wrong.
Use This Paycheck Calculator (When It Actually Becomes Available)
The IRS has released its new withholding tables on its website. Businesses are being urged to implement the new tax laws in their payrolls by Feb. 15. Unfortunately, that means they’ll use outdated W-4 forms to calculate each employee’s taxes.
So what? That means they may withhold too much or too little from your paycheck.
A bigger paycheck sounds good, but not if you’re going to find out you owe in $6,000 next April because your employer withheld too little for Uncle Sam each payday.
The IRS urges all employees to use its new, updated withholding calculator to double-check their employers’ assessments of their tax withholdings. But the new calculator will not be available until the end of February. That means you are likely to get one or more paychecks before you can verify their accuracy.
Be Smart With Your Extra Pay
OK, so after the smoke clears, you discover your paycheck is getting a little bigger and you’re paying the right amount in taxes. Sweet!
Now, how can you make the most out of this boost in pay?
Of course, here at The Penny Hoarder, we’re going to try to convince you to save it. Here are a few easy ideas.
- Think about bumping up your 401(k) contribution by a percentage point. It may not seem like much, but it will add up over time and help you retire more comfortably. If you’re a little behind on your retirement savings, this could help you catch up.
- Consider putting that extra dough into an emergency savings account. It may not be fun, but imagine having enough savings so you don’t have to sweat every time your car makes a weird rattling noise. Get over the paycheck-to-paycheck living!
- Start saving for a down payment. Been dreaming of a different car or buying a house? If you thought you didn’t make enough to start saving, consider this new bump a step in that direction and put it toward a great goal.
A boost in take-home pay is a welcome change for anyone. But it’s only going to benefit you if you are certain your taxes are properly withheld and don’t waste the extra money you receive. Consider this an opportunity to start reaching your 2018 financial goals.
Tyler Omoth is a senior writer at The Penny Hoarder who loves soaking up the sun and finding creative ways to help others. Catch him on Twitter at @Tyomoth.