by Maurie Backman | Sept. 6, 2020
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You may be in line for more money starting now through the end of the year -- but don't rush to spend it.
The stimulus payments that went out to Americans earlier on in the course of the COVID-19 outbreak were a financial lifeline for many. But now, much of that money has been spent, and with the pandemic raging on, it's clear that the public needs additional relief.
Unfortunately, lawmakers have thus far been unable to come to terms on a second relief bill. Until that happens, Americans will have to sit back and wait for another stimulus payment. But that doesn't mean you won't get a cash boost very soon.
In August, President Trump signed an executive order calling for a four-month payroll tax break starting Sept. 1 and lasting through the end of 2020. To be clear, that tax break is merely a deferral of the 6.2% payroll tax you'd normally be liable for as an employee for Social Security purposes.
Right now, the president does not have the authority to forgive four months' worth of payroll taxes, though he's stated he will seek total forgiveness if he's reelected in November. Also, the president's payroll tax break only applies to workers making $104,000 a year or less.
But still, there's a good chance your paycheck will start getting larger in September, and that it will stay that way through the end of the year. While that's a good thing in theory, you should also be very careful about how you spend that money. In fact, your best bet is really to not spend it at all.
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The aforementioned payroll tax deferral is only temporary. If it's not forgiven, what will basically happen is that you'll start getting smaller paychecks starting in January 2021 until you're caught up on the taxes you didn't pay up front. That's why you're best off not spending the extra money you get between now and the end of 2020. If you use up all of that extra cash, you might struggle come January once your paychecks start getting smaller.
So where should you put your extra cash? A savings account works really well. Once your paycheck gets a boost, compare your new take-home pay to your former take-home pay, and bank the difference. If your paycheck goes down in January and it doesn't cover all of your bills, you can withdraw steadily from your savings to make up the difference. That way you can avoid what could end up being costly debt.
Of course, if you're doing very well savings-wise and are equipped to handle a modest dip in your earnings next year, then the need to save that extra money in your paychecks may not be as pressing. But it still pays to spend that money wisely rather than blow it.
Right now, the economy is still in very bad shape -- hence the president's attempt to pump more money into it by boosting paychecks. As such, you never know when your job could end up on the line, or when you might have your hours and income cut. So if you're going to spend that additional money in your paychecks rather than save it, make it count. Use that cash for a home improvement project that will really impact your daily quality of life, or use it to upgrade some electronics to make virtual learning easier on your family this fall. Or, spend it on emergency expenses -- ones you really can't put off, like sudden car repairs or a pipe in your basement that just started leaking.
Though the extra money you start to see in your paychecks might seem like a windfall, it's not necessarily the gift you think it is. Unfortunately, a lot of people won't realize that and will rush out and spend that money. That might help the economy temporarily, but it will hurt workers on an individual basis. Don't make the mistake of blowing your newfound cash when saving it is truly important.
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