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A Penny Saved is More Than A Penny Earned

Contributed by mm | December 17, 2003 10:15 AM PST



A penny saved is a penny earned? That's inaccurate.

The reason: each saved penny is subject to various taxes, but each saved penny is yours to keep.

In the case of mine, each additional penny of my income is subject to Federal Income Tax (25% marginal rate) and Medicare Tax (1.45% flat rate). It is not subject to Social Security Tax because my regular income has maxed out the SS Tax limit ($87,000 for 2003). Therefore, $100 saved equals $135.96 of additional income ($100 / (1 - (25% + 1.45%))).

Moreover, if local sales tax is added (8.8% in my case), each saved $100 is worth $137.58 of additional income ($147.92 = $135.96 * 108.8%). This makes savings even more powerful.

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Comments
>>> Karthik Commented on March 02, 2005


ITYM .."each *earned* penny is subject..." in the beginning of your post.
----
The reason: each saved penny is subject to various taxes, but each saved penny is yours to keep.
----


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