Your Finish Rich Plan - A Personal Finance Blog

Are You Gaining The Most You Can From Your Current Job?

Unless you’ve been living under a rock, you’re probably aware of the fact that we’re in a recession. There’s no shortage of articles on the impact of said recession on the job market, especially for job-seekers. The focus is either how to successfully look for a job in the current environment (provided you’re a new entrant or have been laid off) or how to recession-proof yourself to avoid getting the pink slip. The latter angle is of more interest to me, because it’s generally about how to increase your value in the eye of your employer. There’s one caveat, though. Unless you’re convinced that your job is valuable, you will generally do a poor job of going off the beaten path to secure it. Hence the questions: How valuable is your job? And are you gaining the most that you can from it?

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Holding a job offers more than a paycheck. It also can link you to other valuable benefits. Your job may help pay for health insurance, offer contributions toward retirement pensions, and provide you with further education. All these have a real dollar value. If the earnings from your job are low, you may be eligible for programs that reduce the amount of taxes that you owe or even give you a credit that adds to your income. Even though your earnings may barely cover your bills, if you budget them wisely, you may be surprised how far you can stretch your dollar.

The full benefits you can get from a job will depend on the state in which you live, and will make a difference in the value of your job. You may focus most on how much the job pays, but you also need to consider as well the benefits that come with it. Good benefits can greatly increase the real value of a job.

Making the most of what your job offers

Health Insurance

Next to your paycheck, the greatest dollar value of your job can be health insurance. Health insurance for just yourself will cost at least $200 a month, and if you have a family, as much as $640 a month. Having at least half of the cost of your family health insurance policy covered by your employer is like earning an extra $2 an hour or $4,160 a year.

Authorized and Paid Leave

While you may greatly enjoy your paid vacation days, other paid leave time may be essential. “Personal days” allow you to take time off for necessary personal business without fear of losing your job. Paid sick leave allows you to miss work because you are ill and not have your paycheck reduced. At some jobs you can also use family sick days when your child is ill, or you or your child have a doctor’s appointment.

Retirement Plan

Today most companies offer what is called a 401(k) plan in which both you and your employer contribute money. While retirement may sound a long way off to you, this job benefit has value to you both now and down the road. If you earn $25,000 a year and you and your employer each contribute 5% of your wage to your pension plan, that adds up to $2,500 a year plus interest that is going into a special account for you to use some day. And the employer’s contribution of $1,250 is like earning an extra $.60 an hour. But there is also a benefit for you now because the income on which you pay taxes is reduced by the amount of your contribution, and the interest paid on what both you and your employer contribute is not taxed until you take out the money.

Education

Your employer may also cover the cost of furthering your education. An employer may offer you special on-the-job skills training, or help you pay for courses or even get a college degree. Such additional education and training beyond high school can substantially increase your earnings over your lifetime. Therefore, being able to take advantage of free training increases the value of a job.

Gaining other benefits based on employment

Certain tax policies reward your effort to earn money by adding to your take-home pay. These policies also take into account the fact that holding a job increases your work-related expenses. The tax benefits you can receive depend on your income and/or your personal situation.

Earned Income Tax Credit

Everyone who has modest earnings from work is eligible for this credit that reduces the amount of federal income taxes you owe. If you do not earn enough to owe taxes, a credit is paid to you. You can apply for the credit when you file your income tax form. In 2001, this credit was worth as much as $364 for a single person and $2,428 for a family with one child, and $4,008 for a family with two or more children. Call the IRS help line at 1-800-829-1040 to find out where you can get free help to apply for EITC and other federal tax credits. Or visit the web site of the Center on Budget and Policy Priorities’ at http://www.cbpp.org/eic2002/index.html to learn if you are eligible for this credit and how to apply.

Child Tax Credit

If you have a child under age 17, you can apply for the Child Tax Credit to reduce the amount of federal income taxes you owe. The credit equals 15% of your earnings above $10,500, up to the maximum amount. If your earnings are low, you can receive a refundable credit of up to $600 for each child. Families with higher earnings can receive a maximum credit of $1,000 for each child. Therefore, if you are married and have one child and earn $16,500, you can claim a $600 credit whether or not you owed income tax. The same family with $50,000 in earnings can claim a $1,000 credit. For more information on recent changes to the Child Tax Credit, call the Internal Revenue Service (IRS) help line at 1-800-829-1040 or visit the web site at http://www.irs.gov and search under “Child Tax Credit.”

Dependent Care Tax Credit

This credit allows families to reduce the amount they pay in federal income taxes to help cover some of the cost of childcare. For the care of one child the reduction can be as much as $2,400 and for two or more children you may be able to reduce the amount you owe in income taxes by up to $4,800. To learn how to apply for this credit, call the IRS help line at 1-800-829-1040 or visit the web site for the National Women’s Law Center at http://nwlc.org to download the booklet “Credit Where Credits Are Due.”

Other State Credits

Most states that require you to pay state income taxes on your earnings also give tax credits to help low-income workers and families with children. Over one-third of the states with an income tax have a state Earned Income Tax Credit that can reduce the amount you owe in state taxes just as it does for federal taxes. Almost two-thirds of the states with an income tax allow you to reduce your taxes to help cover the expense of childcare. Most states also have some type of child tax credit. Some states also allow you to reduce your taxes if you have high rent payments. To check what tax credits are available in your state, visit http://www.taxadmin.org/fta/link/link.html to link to your state Department of Revenue.

The table below, “Potential Value of a Job”, shows how much a job could have been worth in 2001. The first line on the chart is your wage if you worked full-time and earned $12 an hour. Added to this is the value of the portion of your health insurance and retirement plan that your employer paid. Also added is the value of the federal and state Earned Income Tax Credit and federal Child Tax Credit that you were eligible to receive if you had two children. Together, these increased the dollar value of your hour’s work from $12 to $16 and the dollar value of your year’s work from $24,960 to $33,445. (Annual adjustments to the EITC and changes to the Child Tax Credit can further increase the dollar value of your work.)

Oh, one more thing. Before anybody accuses me of encouraging people to hold on to dead-end, low paying jobs, keep in mind that this information is just as (if not more) valuable when job hunting

Source: Pathways to Getting Ahead, a publication of the Federal Reserve Bank Of Boston

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