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If you are like me, you probably wish you had just a little bit more in each paycheck. You tell yourself, if I only had $50 or $100 more each month, I could save for X or pay extra on debt, or even enjoy life more.
Now is your chance to follow through on those promises. As a result of the Tax Cuts and Jobs Act (TCJA), the majority of employees will see an increase in their net pay each pay period — starting in February — as less federal income taxes are withheld.
A quick aside: Your new income tax withholdings may not perfectly match what you need to have withheld for the year. If that’s the case, you may find yourself owing the government more or less than you would like come tax time. To find out if an adjustment to your W-4 is warranted (a W-4 is the form you fill out with your employer indicating how much you want withheld in income taxes each pay period), you can either speak with a tax advisor or review your tax withholdings using the IRS Tax Withholding Calculator (we understand this calculator is being updated and may not yet be available).
So what will you do with the extra money in each paycheck? Here are a few suggestions to consider:
Save more. It’s not often someone says, “I wish I had saved less.” Take advantage of this opportunity to increase your emergency fund savings, retirement plan savings, or the amount you are saving toward a goal, such as buying a home or vehicle.
Pay down debt. Not only will you be paying less to Uncle Sam, you’ll also be paying less to the bank (yes, USAA has a bank) in the form of interest. USAA can help you devise a plan to apply the extra debt payments in the most efficient manner.
Have fun. All work and no play is a recipe for burnout. As long as you are taking care of business (saving, managing debt properly, spending wisely), it’s OK to have a little fun. Fun should be built into everyone’s budget, and if it wasn’t possible before, maybe it will be now.
I hope these suggestions will help you put your extra net pay to good use. Since the majority of the TCJA changes for individuals will only last through 2025, I would caution against increasing your monthly expenses by taking on more debt or larger service bills.
USAA is here to help by providing additional information and guidance on your specific financial needs and goals as we continue to evaluate the impact of the tax bill in 2018 and beyond. We’re committed to helping you make smart financial decisions all along the way.
Visit USAA’s Tax Center for information and resources. You can also speak with an advisor by calling 800-531-8722.
The contents of this document are not intended to be, and are not, legal or tax advice. The applicable tax law is complex, the penalties for noncompliance are severe, and the applicable tax law of your state may differ from federal tax law. Therefore, you should consult your tax and legal advisors regarding your specific situation.