Anyone else lose money by doing overtime at work?

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Zorba

Lifer
Oct 22, 1999
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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!
On a per paycheck basis, taxes are withheld based on Schedule 15. These calculations assume that whatever you make on any given paycheck is what you will make all year. So if you are paid every 2 weeks and get on check with a bonus on it for $10k the calculations will assume that you make $260K/yr, even if your normal check is only $4k. Of course when you do your taxes at the end of the year, you will only owe based on what you actually earned and it all works out. But this is why if you get a check with a lot of OT or a bonus the withholding rate is higher than normal.

If you use a good W2 calculator (like the IRS's) and you have a good idea of what your total for the year will be, you can adjust your W2 to end up with the right amount of withholdings at the end of year even with the ups and downs.

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.
My company only withholds based on base salary :(. I really wish I got extra 401K match with my OT, but oh well. Can't bitch too much since I get paid OT as an engineer (just straight time, though, not time and a half).
 

Zorba

Lifer
Oct 22, 1999
12,527
7,623
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It's been a long time since I've done a 1040ez, but at least the last time I used one (~16 years ago) you looked up owed taxes off a table instead of doing a formula. The table was in $100 blocks, IIRC, and the tax was the average tax for the block. That is, the block for $40,000-40,100 was taxed like $40,050. So if you made $40,101 you were worse off than if you had made $40,090, but it was obviously a pretty small difference.
 

BoomerD

No Lifer
Feb 26, 2006
59,826
8,052
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It's been a long time since I've done a 1040ez, but at least the last time I used one (~16 years ago) you looked up owed taxes off a table instead of doing a formula. The table was in $100 blocks, IIRC, and the tax was the average tax for the block. That is, the block for $40,000-40,100 was taxed like $40,050. So if you made $40,101 you were worse off than if you had made $40,090, but it was obviously a pretty small difference.
But that's filing taxes for the year. Your withholding is based on different calculations.
 

dullard

Elite Member
May 21, 2001
24,190
2,409
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It's been a long time since I've done a 1040ez, but at least the last time I used one (~16 years ago) you looked up owed taxes off a table instead of doing a formula. The table was in $100 blocks, IIRC, and the tax was the average tax for the block. That is, the block for $40,000-40,100 was taxed like $40,050. So if you made $40,101 you were worse off than if you had made $40,090, but it was obviously a pretty small difference.
That is still a thing. Tax tables are annoying that way. They are every $50 in income, but your point is correct. If you make $40,099 and go to $40,100 then your tax will increase by $6 (a net $5 loss). But, they also work to your advantage. If you make $40,100 and earn $49 more, that last $49 is all federal income tax free.

I used to use tax tables to my advantage like that. If I was right at the edge, I'd donate a cheap thing to go down to the next lower slot. Donate $1 and get $6 off your taxes. I just don't use tax tables any more.
1660311390067.png

One thing to emphasize is that no where on these tables or on the tax forms is overtime mentioned. The IRS has no clue if your earnings were overtime or not. Meaning there is no penalty for income being overtime vs regular wages.
 
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Zorba

Lifer
Oct 22, 1999
12,527
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But that's filing taxes for the year. Your withholding is based on different calculations.
Yeah, that's just the only place I could think of were making more money could result in a lower net. But it's a tiny amount and only at the end of the year.
 

jpiniero

Lifer
Oct 1, 2010
12,576
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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.
Or a smart one, given that they get lots of "free" labor.

I thought this thread was going to be about that.
 

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