OK, so you got a promotion! That is good. Congratulations on your accomplishment! But what do you do next to make your new job title a success for the future? And how do you handle the extra amount of money that you will receive now that you got a big pay raise? That is the question that you need to ask and you are the only one that can answer it – with a little guidance, of course. You should never be complacent when it comes to your finances, whether it is more money that comes with a promotion or just the normal increase in salary or maybe a new career change. Below are some excellent financial changes to make after you receive a job promotion. Let’s take a closer look.
When you first got hired for your job, you were asked to complete a W-4 tax withholding form. The employer does this to make sure that you are getting the right amount of taxes withdrawn from your pay each week. This is also when you document your dependents. You will have to make adjustments to your W-4 form and hand it in to the HR department. If your status to file a return placed you in the joint return category with a spouse and you have a combined taxable income of $90,000 (in the 25% tax bracket), the tax due to the IRS would be the amount in excess of $37,450 and this would be $18,293.75. When you receive a promotion, you could have a new income of let’s say, $100,000, you would now be in the 28% tax bracket paying $21,071.25 (the amount in excess of $90,750).
When you have more money, you are going to have additional responsibilities. Assess what those responsibilities are for the new position and establish the time it will cost you to perform them. Let’s look at this closer. If you are a mother of two young children and your new job promotion called for longer hours at work, you may have to pay extra to have a babysitter watch the kids while you are at work. This is an extra cost financially and something you would have to factor into your budget.
In this situation, though, you can use the dependent care or child care as a means to get back more money from the IRS at tax time. Child care is a major tax deduction in addition to earned income credit.
Another great tax deduction is driving to and from a corporate event or any job related tasks that your promotion forces you to perform. Calculate your mileage and vehicle expenses such as car maintenance and auto insurance. Find out from your employer if your new position allows you to telecommute from the comfort of your own home. You can use this opportunity to get further tax deductions since you will be using part of the space at home to conduct business.
Increase in Credit Limit
When you have an increase in salary, you can also ask the credit card company for an increase in credit limit. However, be careful about this because you don’t want any temptations to overspend. If you spend wisely and pay on time, this will only serve to improve your credit rating.