IRS – I take back all the nice things I recently said about you…YOU STINK!

Or it’s probably congress who stinks, I’m not sure who, but basically whoever is responsible for IRS Publication 15 (Circular E – Supplemental Wages) THEY stink.  This rule is going to cost us over $300 of our own hard-earned money.

The rule is regarding the tax treatment of bonus checks.  My husband receives a once a year bonus check in March.  According to the above rule,  this check is taxed at a mandatory 25%.

As I’ve stated before our effective tax rate is a ridiculous 1.26%.  I know, I don’t have a lot of room to complain with a tax rate like that, but we have deductible mortgage interest and property taxes, deductible student loan interest, crazy “city wage tax” and state taxes, three kids and are squarely middle class so it’s not like we are doing any creative accounting. ( I don’t even bother with our meager charity deductions because I feel I little guilty about this.)

I changed the w4 withholdings to 15 exemptions this year to no avail!  The paychecks don’t have a penny of Federal Taxes withheld and we will still get close to $3000 refunded.  The IRS will hold 23.74% of that bonus check in their coffers from March 2010 until we get it back in the form of a tax refund in MARCH of 2011.

In the meantime we will pay interest on credit cards with rates as high as 24.5%.  In the past I didn’t care, I loved that BIG REFUND.  But now that we are serious about no debt, and have a plan in place to get rid of it all, I’m a little miffed.  Each time I make a “Debt snowball” payment (or “debt avalanche” payment to be more precise)  I choke a little when I see how much of it goes to the interest and not the principal.   That chuck of our money we have to wait a year for would really speed up the process and save us money in interest or go to beefing up the emergency fund which would earn interest for us.

Do you think I can invoice the government for all the accumulated interest we will pay over this year?  I mean I don’t expect them to pay interest on tax refunds when most people who CHOOSE to CAN avoid them –  but what if  the IRS won’t ALLOW you avoid a refund?

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This is a story of the troubles that ensue when you live paycheck to paycheck and your paycheck is late.

My husband has been at the same job for 15 years and has without fail, been paid on time via direct deposit.  Paid on time and in full every 15th and last day of the month for the past 15 YEARS!   And even-though, with all my technophobia (my budget is still on paper), I have had such faith in the timely paycheck deposits that I automated ALL of our payments, bills, investments.  The mortgage is automated for the 1st and most of the rest of the bills (car insurance, car, electric, phone, credit cards…) are all set up to be paid on the 15th.

This was all going along swimmingly, until this Monday, March the 15th.

I had a feeling something was amiss on Saturday when the paycheck wasn’t listed in “pending”  on the banks website.  If payday falls on a Monday it ALWAYS has been deposited after midnight on Friday night, although it won’t actually “clear” until Monday.  I really felt uncomfortable on Sunday morning when it still wasn’t there.  I stayed up Sunday night into the wee hours of Monday morning because the knot in my stomach was getting larger by the minute and was hoping against hope it was going to go in there.

I had 16 scheduled payments automated to come out of that checking account on Monday the 15th.

I freaked, it wasn’t there Monday morning by 7am.  I scrambled to every website where a payment was scheduled to be made, canceling the payment, hoping it would cancel this late in the game.   Trying to remember 16 logins and passwords and clumsily navigating websites I hadn’t visited in months.  One website was “Experiencing Technical Difficulties” – “Try Back Later”, *sigh*.  I was picturing an endless, disgusting cascade of bounced checks. 16 Bounced checks would = $576 in NSF Fees!!! I eventually figured out how to, and did cancel all the payments.

I called the bank.  “No, we see no incoming deposits”.  CRAP, the Ides of March got us.

As a SAHM, I say all the time, “I work, I just don’t get paid.”  Apparently now, my husband does too.

He gets to work Monday morning, with the office all abuzz and comes to find, “a glitch with the payroll company and the problem will be resolved and deposits will be made by end of business.”  And it was, at around 3pm the deposit went in the bank.  Magically, it bypassed “pending deposits” and went straight to “available balance.”  He was paid in full and on time (it was the 15th).

Now I had to login back in to 16 different websites and redo the payments.

The bills and payments were in no danger of being late, but I liked paying them early and the money left over on the 16th was “uncommitted money”.  Our milk money, if you will.   I never doubted it would be more than 2 days or so that he would get paid, but the drama of having A LOT of money set to come out of an account where there was NO MONEY was too much stress to bear.

I’ve UN-automated all our payments.  No more “scheduling payments” or “automated bill pay”.  We’re going old school.  Well, I’m not going to write actual paper checks or anything that crazy, but I will pay each bill individually after I make sure the paycheck is in the bank.

We can’t afford to take the chance…

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If  you saw the recent Forbes list of  the Top 25 Richest counties in America, and you don’t live in one of them, you might be tempted to assume those who do all drive Porches, eat caviar like it’s pretzels or live 10000 square foot mansions.

We live in number 24 on the list of richest counties but we are as middle class as it’s gets.   I wonder how living here, surrounded by immense amounts of highly concentrated wealthy families effects the way we approach money, at least psychologically?

Everybody has heard of the “Keeping up with the Joneses” phenomenon.   Originally proposed by James Duesenberry as the, “Relative Income Hypothesis” stating that, an individual’s attitude to consumption and saving is guided more by his income in relation to others than by an abstract standard of living.

So living amongst rich people MAY provide a more powerful motivator to consume and save than our own internal reality of how we approach wealth.

I’m really not sure how much outside influences have on how my family saves and spends.  I like to think it has ZERO influence.   But c’mon, no man is an island and all that.  It has to effect us in some way.

How much does environment play into our perception of wealth and how does that effect our pursuit of wealth?

I can only speak anecdotally, but I do wince a little inside when my daughter’s new friend invites her over to play and her garage is bigger than our house.   Our kids will attend the same blue-ribbon public school so we also benefit tremendously in spite of any inferiority I may feel.

I think as long as you don’t fall prey to “conspicuous consumption” the benefits of living surrounded by wealth outweigh any downsides.    At this point of our “financial enlightenment” we don’t feel the need to buy stuff to prove anything.  And we never really did “just buy stuff”, we were sloppy with our money and let it control us instead of vise versa.  We are now  focused on our own financial house.  What may have been feelings of envy towards the 20 BMW’s in the preschool parking lot  have been replaced with motivation.   The motivation is not for us to “be rich” but for us to live for ourselves, and never mind the masses.

The wince of inferiority I feel in the face of all the wealth I see on a daily basis WILL SOON be replaced with the pride of having control of the money and the future we do have.  And all the while our family will live simply and take advantage of the amazing schools, the safety of the community and it’s beautiful parks.   Thanks richy-riches!

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My mom’s dishwasher has been on its last legs for a while now.  It finally died this past weekend and she and my dad were hoping to take advantage of the “CASH FOR APPLIANCES” AKA the “Energy Efficient Appliance Rebate Program.”

But it’s “NO GO” for them.   The program is administered by each individual state and it is your home state which decides what appliances are eligible for the rebate (or not).

Turns out in PA, dishwashers are NOT eligible for the rebate.  In fact, no classic “white goods” are eligible for the rebate in Pennsylvania.  (List of what is eligible in PA. Basically only dull stuff is eligible like, “boilers” and “furnaces”.  No cool new shiny stuff with tons of buttons and options, but I digress.)

And if you live in Iowa, Minnesota or Kansas you’re out of luck too.  Their rebate program already ended.   Some states reserve rebates for low-income participants or only if you are disabled.

So if your planning on buying a new appliance and taking advantage of the rebate, make sure your purchase is eligible and you qualify. You also need to make sure that your state has remaining rebate funds because when your state’s funding is exhausted, the program is over – no more rebates…

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My sister’s employer recently presented them with new health insurance choices.  They can pick from a Traditional Plan (PPO) or a High Deductible Healthcare Plan (HDHP) with an Health Savings Account (HSA) savings account.

I’m the “big sister” and as such, a bossy know-it-all – so of course she asked me for some advice on which plan makes better financial sense for her.  I’m kinda at a loss here.  Very complicated stuff even when you do try to plan ahead.

She getting married in July, will add her husband to her plan and they hope to start a family soon after they tie the knot.  In regards to healthcare, the question for her is, “WHAT WILL THE MATERNITY COSTS BE” under each plan?

“Which plan will cover more pregnancy related costs?”  The Traditional Plan or the HDHP with HSA?

It took her while to flush out the true costs for either plan.  Insurers and provider’s don’t make it easy for you gauge what is covered, what is considered “preventative care” (what the IRS will allow as Preventative Care under HSA’s – not necessarily what YOUR plan will cover as preventative care), what is subject to deductibles…

After much back and forth with her “Policy Rep” she finally felt confident enough to do a cost comparison of the two plans.  If she chooses get pregnant under a HDHP with an HSA , she COULD pay less than the PPO plan, it all comes down to how much risk you are comfortable with (and a little bit of gambling).

Imagine you have “Employee + Spouse coverage” and plan to have baby.  Your “POLICY YEAR” runs January 1st to December 31st (why that matters later) and you get pregnant in February, have a pregnancy with NO complications and deliver with NO complications in November:

This is quick look at cost she had to consider (only in regard to maternity coverage) with that hypothetical in mind.

Choice #1 – TRADITIONAL PLAN COSTS (PPO) – 100% Coverage after Deductible is Met

Yearly Premiums (deducted from paycheck pre-tax) – $5460

Co-Pays (Prenatal exams – $20) (Ultrasound – ($20) – $40

Deductible (Delivery is considered an “In-Network Hospitalization”  and subject to meeting deductible) – $500

Co-Insurance  – $0


Choice #2 – HDHP with HSA – 100% Coverage after Deductible is Met

Yearly Premiums – $3016

Co-Pays – $0 (but all “non-preventative” care is subject to deductible)

Deductible – $4000 (Paid from tax-favored  HSA account – Employer contributes $1500 a year to HSA)

Co-Insurance – $0

COST OF UNCOMPLICATED PREGNANCY =($7015-$1500 employer HSA contribution) $5516

You would save $484 with the High Deductible Plan in the above scenario.  So is it a no-brainer?  The HSA all the way?

But what if you get pregnant in JUNE instead of JANUARY? The pregnancy now spans “TWO POLICY YEARS” and therefore you now have to meet the deductible twice before any coverage is paid out.   It’s very likely that with a pregnancy with no complications you won’t meet the full deductible for the pregnancy during POLICY YEAR ONE, maybe only paying out from the HSA account for an ultrasound or a few tests.  But that’s the GAMBLE.

So the choice to get pregnant money-wise becomes:

1.) Prepare for a “TWO YEAR POLICY” pregnancy but hope for the best.

HDHP Plan – AS MUCH AS $8016 –  AS LITTLE AS $5516


2.) Know the costs beforehand but pay more.

Traditional Plan – $6000

Which would you choose?  I’m pretty risk-adverse so I’d probably pick #2 – the PPO. Ironically, I’ve had three uncomplicated pregnancies, three uncomplicated deliveries and somehow completely unintended on our part THEY ALL spanned  only ONE POLICY YEAR.  We have an HMO so it would have been a  moot point – but if we had the same choice we would have saved some money by going with option #1!

If you have an HDHP and had a baby did you actively try for that “ONE YEAR POLICY” window?  That’s a lot pressure the get pregnant in very specific timeframe!

Is maternity care/pregnancy the only “health issue” treated with such a risk-reward scenario for the insuree?

If you find yourself with a similar choice you may want to read the “Kaiser Foundation” report on Maternity Care and Consumer-Driven Health Plans. (Long but VERY informative.)

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“If only one spouse works do I still qualify for the full $800 “Making Work Pay Credit”?

The answer, in MY CASE is yes, because:

We are Married filing Jointly.  Single filers max out at $400.

We make less than $150,000.  Credit starts phasing out over this amount for Married Joint filers.

My husband held only one job in the 2009 tax year.   Having more than one job may result in the credit being withheld  from both paychecks.

Because this a CREDIT on the amount of tax you owe, it may even give you refund even if you do not owe federal taxes.

I’m having a hard time wrapping my head around the fact that we qualify for the full $800.  I mean I’m not complaining, just a little shocked.  This is the first cash value I’ve ever received for being a stay at home parent.

But it doesn’t even matter if we have kids or not.  We would still qualify if we were childless and I did not work  – because we are married.

I mean highly doubt those who are legality entitled to get married would choose to do so for $400.  Especially considering there is no longer a Marriage-Tax penalty.

But I’m surprised this hasn’t opened a bigger can of worms in the endless tax fairness debate…

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I thought I was a goner.

Maybe they had read my gloating and decided we were up to no good.  Or maybe they had gotten wind of my plan to deny them a free loan next year and had decided to take their revenge…

Was it the dreaded AUDIT?

NOPE!  I had made a mistake on my taxes.  They were writing to inform us that they OWED US more money.   After I filed my taxes I had noticed I made a mistake when claiming the “Making Work Pay Credit”.

One of the questions via Turbo Tax was something to the effect, “Did you already receive the Making Work Pay Credit?”.  I checked YES because my husband did receive a small bump in his paycheck last March.  But the question pertained to those who had received an actual $250 check from the government (ie Social Security recipients, Veterans Benefits, Railroad Retirement…) called the “Economic Recovery Payment”.   It looked to me like we would be “double dipping” on this credit if I did not indicate we HAD in fact received something.  I was wrong.  See Tax Girl’s great explanation of why this isn’t the case.

After I realized this I figured I would just wait for my refund and file and amended return to get back the $250 I had mistakenly said we already received.  Turn’s out the government took care of it for me.  With a very nice letter indicating when my refund comes it will include the additional $250.

Here is something I may never say again, “THANK YOU IRS!”

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