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How to Spend Social Security Tax Cuts

Everyone's Getting a Raise This Year — Here's What to Do With Yours

If you haven't already, you'll probably be receiving your first paycheck of the year very soon. And once you take a look you may notice that your check is slightly more than it normally is, courtesy of the Social Security tax cut that the President signed into law last month.

For 2011 only, that mandatory payment into Social Security has been slashed to 4.2 percent, from 6.2 percent. What does that extra two percent mean?

Broken up into pay periods, this "free money" may not seem like a lot, but it can add up to a maximum of $2,136 depending on your salary. So instead of splurging on larger lattes or otherwise throwing it away, do something savvy with your money instead.


Learn how to calculate how much more you'll be getting this year, as well as tips on where to put it after the break.

To find out how much you'll be getting per paycheck, simply reduce your salary by any pretax contributions and multiply by 0.02, or use Kiplinger's helpful calculator. For example, if you make as much as the average American— around $40,000 — and don't have the opportunity to contribute to a flexible spending account, then you can expect an extra $66 a month, or around $800 for the year.

Knowing how much extra money you are getting because of the tax cut can be a simple way to motivate yourself to save it. After all, since it's money you didn't think you had, it should be a no-brainer that you want to invest it as wisely as possible. Plus, since it's spread over the course of the year instead of being a lump sum, you may find it easier to hold off of that splurge.

Instead, increase your 401(k) contributions by two percent, set up a recurring deposit every month to send the money straight into your savings account for emergencies or a much-needed vacation, or use the funds to pay off debts. Just make sure you don't let your dollars go to waste! How will you be using the extra money?


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