Anyone else lose money by doing overtime at work?

VirtualLarry

No Lifer
Aug 25, 2001
54,562
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My friend was telling me, that with his raises at work, he can't do overtime any more, because he'll lose money, because that puts him in a higher tax bracket, and he'll have to pay more for SS tax.

Are there any cases in which this is true? I personally think that my friend is off his rocker, because he hasn't actually "run the numbers".

Anyone else on her on a high hourly job, and not taking overtime because they'll lose money?

I'm not talking about forced overtime while working a salaried job, that's something else. This specifically has to do with crossing tax brackets with an hourly wage job.
 

RPD

Diamond Member
Jul 22, 2009
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That's not how taxes work. He'd have to be in some super weird tax situation (if it even exists) to happen.
Tax brackets work by, you pay 23% (or whatever) on say the first 100k you earn. Above that say 101-200k you'd pay 25%, then 201-300k you'd pay 35%. But each bracket is taxed separately. You don't pay 25% on the entire 200k just because you broke 101k that year.

To further help expand on my example, say he earns 250k.
23% of 100k would be 23k.
25% of 99k (101 to 200) is 24.75k
35% of 49k is 17.15k

Sorry the numbers aren't nice and round, but in this example he'd have an effective tax rate of 26%.
 

nakedfrog

No Lifer
Apr 3, 2001
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I don't get paid for overtime since I'm salaried, so I think of any overtime as losing money, and a sign of ill management.
 
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BurnItDwn

Lifer
Oct 10, 1999
25,908
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Hi Larry,
Your friend is confirmed "off his rocker"

Lots of people are financially illiterate. Marginal tax rates do take a little bit of thinking to understand. I'm not sure how well its taught, or how much it sinks in if you learn it in middle school or high school.


That said, Im in the same boat as nakedfrog here. OT exempt on a salary. The more I work, the less I'm taking home per hour worked.
 

Captante

Lifer
Oct 20, 2003
27,293
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One thing I've noticed that absolutely DOES happen when I've worked a lot of OT (50-60+ hrs) in the past is you'll often see somewhat "diminishing returns" in terms of check-size as the hours tick up. (depending on withholding)

Never mind what working that many hours consistently does to your soul!
 

BurnItDwn

Lifer
Oct 10, 1999
25,908
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One thing I've noticed that absolutely DOES happen when I've worked a lot of OT (50-60+ hrs) in the past is you'll often see somewhat "diminishing returns" in terms of check-size as the hours tick up. (depending on withholding)
This can happen, especially if you have additional percentages taken out of your paycheck going into retirement plans or investment plans, as those % are usually based on gross rather than net.
 
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VirtualLarry

No Lifer
Aug 25, 2001
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One thing I've noticed that absolutely DOES happen when I've worked a lot of OT (50-60+ hrs) in the past is you'll often see somewhat "diminishing returns" in terms of check-size as the hours tick up. (depending on withholding)
That could be what he was referring to by "losing money", but really, you would still come out ahead by working the extra hours, no? And that extra going into SS, unless he believes that SS is going to be abolished, then that extra should benefit him in retirement, no?
 
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RPD

Diamond Member
Jul 22, 2009
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That could be what he was referring to by "losing money", but really, you would still come out ahead by working the extra hours, no? And that extra going into SS, unless he's a total trumper and believes that SS is going to be abolished, then that extra should benefit him in retirement, no?
Yes, also SSI is capped, this year at $142,800 of income. So after that the tax disappears from your pay stub until next year.
 
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dullard

Elite Member
May 21, 2001
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Almost everything in tax law is tapered. Thus there is almost no situation where you earn an additional $X more and your taxes go up more than $X.

But, there are some income caps for certain items that your friend might encounter where it just isn't worth trying to earn more. For example, if you earn $1000 more but get taxed $900 more, then it probably isn't worth doing the overtime even if technically he is factually incorrect about losing money. If your friend has started SS early but is still working, that is one of those types of situations. This is because SS payments drop drastically if you earn above the income limit for collecting SS.
 

VirtualLarry

No Lifer
Aug 25, 2001
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No, said friend is not collecting. Good to know that SSI contributions are capped yearly, but he's not (yet) making quite that much.
 

dullard

Elite Member
May 21, 2001
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I don't think so. He's making $50K/yr.
If he is single and has few if any deductions then he would be right near the 12%/22% tax bracket border. Meaning he would pay 12% federal income tax on most of the normal income (0% and 10% on the rest due to the standard deduction and the lowest tax bracket) and 22% federal income tax on most of the overtime income. Paying 22% on the EXTRA income might feel terrible since it is much higher than the 12% he normally pays. But, 22% is still far, far from losing money.

Social security taxes are a flat rate (until you make a lot more than he does). So his rate doesn't change there.
 

dullard

Elite Member
May 21, 2001
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Show him a tax calculator like this: https://smartasset.com/taxes/income-taxes#uvOXCnLBYo

Example: In the default location (Chicago) and with default settings:
  • A $50k income has a net take home pay of $39,523
  • A $52k income has a net take home pay of $41,031
  • Thus, there is no loss for this extra income. And this calculator includes taxes such as social security taxes.
 
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Captante

Lifer
Oct 20, 2003
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That could be what he was referring to by "losing money", but really, you would still come out ahead by working the extra hours, no? And that extra going into SS, unless he believes that SS is going to be abolished, then that extra should benefit him in retirement, no?

Yes the check will be more but withholding % can go up slightly too so you end up not actually getting quite as much per hour as you might expect for any extreme OT.
 
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BoomerD

No Lifer
Feb 26, 2006
59,857
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First...SSI is Suplemental Security Income. It's NOT a Social Security-funded program...it's paid for through normal income taxes like most government programs. If Larry's friend is collecting that, there are severe income limits...which I suspect he usn't because $50k would most kikely put him iver tge limit for any SSI benefits.

I suspect what people are calling SSI is actually just Social Security ..FICA on your check. THAT one has a contribution limit that (usually) changes every year. When I was working ..if I wirked for more than 1 employer in a year, it was easy for me to blow through that limit because the second employer had no idea what my annual income would be...ao I just deducted the overage when I filed my income taxes.

Depending on the wage earned and giw much overtime is worked in a pay period, sure, you can indeed see a "diminishing return" on the wages. The higher tax bracket (if it's hit) can make it seem like you're bringing home less money...wven if you're actually not. Sometimes it hardly seems like the extra hours aren't worth it.
 
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Lost_in_the_HTTP

Diamond Member
Nov 17, 2019
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^^^ Some people call it Social Security Insurance ... SSI.

Years back I was on salary, but it was 'exempt' or whatever the term was so that overtime could be earned.
 

sdifox

No Lifer
Sep 30, 2005
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OT are for suckers. They tend tp end up in higher tax bracket. Get time in lieu instead.
 

snoopy7548

Diamond Member
Jan 1, 2005
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I don't work overtime. In fact, I work undertime. My goal is no more than 30 hours per week, so to me overtime is 40 hours. Fuck the system is what I say.
 
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BoomerD

No Lifer
Feb 26, 2006
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I don't work overtime. In fact, I work undertime. My goal is no more than 30 hours per week, so to me overtime is 40 hours. Fuck the system is what I say.
Damn...for most of my career, I wouldn't take a job that wasn't working at least 50 hours per week...60+ was preferable. If I was on a job out of town...and I was either staying in a motel or RV, I wanted to work every available hour.
 

snoopy7548

Diamond Member
Jan 1, 2005
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Damn...for most of my career, I wouldn't take a job that wasn't working at least 50 hours per week...60+ was preferable. If I was on a job out of town...and I was either staying in a motel or RV, I wanted to work every available hour.
Wife drove you crazy, huh? :p

I'd work all day/night if I was working for myself. Sometimes I have a hard time pulling myself away from my work since I like it, but it will still be there tomorrow, so no need to put in extra time.
 

BoomerD

No Lifer
Feb 26, 2006
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Wife drove you crazy, huh? :p

I'd work all day/night if I was working for myself. Sometimes I have a hard time pulling myself away from my work since I like it, but it will still be there tomorrow, so no need to put in extra time.
nah, it was all about the benjamins... (and it was the kids who drove me crazy...insanity is hereditary...you get it from your children)
 
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Red Squirrel

No Lifer
May 24, 2003
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I thought this too as one time I made JUST over the tax bracket and I asked my tax accountant if there's anything I can do about that. But she said you only pay more tax on whatever amount is over the tax bracket. Ex: it does not just raise the rate for the entire income. So let's say the next bracket is 80k and you made 81k, you only pay that bracket's % rate on the 1k. The rest is taxed at lower bracket.

That said once you're making decent money a good chunk of that is still going to be into a high enough bracket so the amount of money you lose to taxes still ends up quite high and any OT you make even within the bracket you're still getting taxed at that already high rate. I find OT is only really noticeable on the pay cheque when it's a big enough amount. If I'm going to work OT I rather just work a full day or more, make it worth it. Large power outages can be lucrative. A few months back I ended up putting in 24 hours of OT. Made close to a grand extra on that pay. When you accumulate a certain amount of OT in a certain pay period it starts to pay out at double time. Anything over 6 hours I think.

OT is not very common at my work so I take anything I can and take the money, but if it was common I would start taking it as banked time instead. I work shifts, so I already get lot of time off anyway.
 

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