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What will you do with 2% more in your paycheck?

If Santa Clause didn’t come down your chimney with anything good this year, Congress has decided to give you a stocking stuffer for the New Year.   With nearly 160 million workers that will benefit from the extension of the reduced payroll tax that passed just before Christmas, it’s time to figure out whether you’ll be naughty or nice with your gift.   The Temporary Payroll Tax Cut Continuation Act temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of your Social Security withholding rate from 6.2% to 4.2% of wages paid through February 29th, 2012.  (source: www.irs.gov) Of course, this is supposed to have no effect on your future Social Security benefits.  Yeah, right!

If you weren’t aware, this payroll tax cut was in effect for all of 2011.   This means that for those who earned W-2 income last year up to your first $106,800 of waged income, you actually got a 2% pay raise in 2011.   Here’s the real question.   What did you with your $1,000 to $2,000 pay raise in 2011?    Did you save it?  Did you spend it?  Did you even realize that you actually got a pay raise or was it just like life was merrily rolling along gently down a stream?

Just so most of you understand the game; there are two sides to the payroll tax.   6.2% is generally paid by the employee toward FICA (Social Security) and 6.2% is paid by the employer.   Under the payroll extension act, only the employee gets a reduction to 4.2% for the first two months, while the employer still pays the full boat of the 6.2%.   If the goal of these types of tax cuts is to create more jobs, how is this going to create incentive for small business owners to hire more people when they don’t get any break from this extension?

The current members of our Government are using this in my opinion for just another back handed stimulus package especially when two months of making this change are going to create more work than it probably will do good.    Besides the fact that many of the people that get this free money will either spend it or just end up paying off the additional debt they racked up during the holiday season.   If you were naughty during Christmas, then please use the cash to pay off your debt.  If you were nice during Christmas, then just up your 401(k) contributions by 2% for the first two months and you won’t miss the money.

I thought maybe our Government could start the year off with some smart money moves, but it is clear we are back to the same old tricks that helped up rack up this debt.  Let’s spend more money we don’t have, stimulate in areas that don’t solve problems, and keep piling on the band-aids.    Maybe these guys up in Congress should get stuck in a chimney!

Visit to www.oxygenfinancial.net to request a free consultation with the leading financial experts for people in their 20’s, 30’s, and 40’s in the country.

Written by:

Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®

Co-CEO and Founder of oXYGen Financial, Inc

Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

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My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

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