Sometimes, just as people are making progress to improve their finances one small step at a time, something happens to set them back. For some people in today’s difficult economic climate, that setback is a furlough.
Furloughs (also known as “temporary layoffs”) have been in the news a lot lately and are being used by both public and private sector employers.
In some cases, furloughs are voluntary and employers ask for volunteers to take unpaid leave in exchange for more time off. In most cases, however, furloughs are mandatory and every worker is told to work less, and therefore, earn less.
If you are facing a furlough, you need a plan for both the income loss and how you’ll use the unpaid time. Consider the following suggestions:
1. Start Calculating
Start by figuring out what you earn in a day.
For example, if you earn a $40,000 gross income (i.e., your salary before taxes), divide this number by 260 (the average number of workdays in a year).
The result ($154) is your gross daily pay. Then multiply this number by your federal marginal tax rate for your tax filing status and subtract it from the gross daily pay to determine your daily after-tax (net) pay.
For example, subtract the product of $154 and 22 percent ($34) from $154 to get $120. This is a rough estimate of income lost for each furlough day. If you’re furloughed for 20 unpaid days, you will lose approximately $2,400.
It will actually be somewhat less than that once FICA, state income tax, unemployment, and/or disability taxes on lost income are also subtracted.