Overtime tax!

[Beau]

What's the deal with overtime? Are you taxed more heavily still? I thought Bush's new tax plan stopped that. Anyone know where I can find the rates for OT taxing?

 

[dman]

Your taxed on how much money your earn (per year), not on how many hours it takes you to earn it (in that year).

 

[EagleKeeper]

Working overtime increases your gross pay. If calculated out at that current level for a years time would increase your tax bracket, then the amount of taxes on your overall salary for that pay period will also increase.

Ex:
$400 salary = $60 tax
$500 salary (due to overtime) will not equal $75 tax the extra tax bracket may push you to $85.

So you think that working OT will net $75 after normal tax % when it actually produces $65 due to the extra tax bracket caused by the OT jump.

 

[kranky]

dman is exactly right. But what might be confusing you is that the percentage withheld in tax goes up as your earnings go up. Many payroll systems look at your two weeks earnings and then decide how much to take out in taxes assuming you make that much all year long.

It all balances out when you do your tax return.

 

[spidey07]

yeah, sucks when you get a raise and end up taking home less money.

has happened before.

 

[StageLeft]

yeah, sucks when you get a raise and end up taking home less money.

has happened before.

I've heard such tales before but I don't think its possible. The reason is that if you're in a 50% tax bracket thats only on a portion of your money. For instance:
$0-20k/year - 20% taxes
$21-40k/year - 30% taxes
$41k year + - 50 % taxes (these are not real numbers)

If you edge up from 40k to 41 k your tax bracket has increased from 30% to 50%. Do you take home less pay? No. Your FIRST 20K are taxed at 20%. Your next 20K are taxed at 30%, and your last $1k is taxed at 50%. 50% is your tax bracket but in fact most of your income you paid at a lower tax rate.

 

[kranky]

You're right, skoorb. Taxes are a percentage, and since withholding taxes don't exceed 100% (not even close), you can't end up with less money after a raise.

Although I used to work with some people who swore up and down if you worked enough overtime you're take-home pay would end up smaller than if you didn't. I argued until I was blue in the face but they wouldn't back down - they all "knew" it happened because it happened to them in the past.

Then I found out that was a story that they told to new employees - to keep them from working lots of overtime. Since they were the long-time employees, they didn't want all the overtime going to the new people. Plus if the new people worked 60 hours/week and the old-timers only did 50, it looked bad for them.

 

[mrchan]

yes, skoorb is right. u can't take home less by making more.

 

[spidey07]

<< Your FIRST 20K are taxed at 20%. Your next 20K are taxed at 30%, and your last $1k is taxed at 50%. 50% is your tax bracket but in fact most of your income you paid at a lower tax rate. >>



you sure about that skoorb? maybe the getting raise/taking home less is just a tall tale. Just seemed possible, unless what you are saying is true. I'm still trying to figure out how to knock taxable income down a bracket with deductions, charity and tax deferred investments but don't know the "brackets" any linkage?

darn IRS takes WAY too much of my money anyway.

 

[C'DaleRider]

skoorb is correct........there is absolutely no way to work more hours and take home less, unless they tax you at a rate >100%...then they'd be taking everything you earned in OT and dipping more into your base hours.

And he is also correct in the tax bracket breakdown....it's only the money over the $20K, or whatever the breakpoint is, that's gets taxed at a greater rate.

What happens is that the percentages can increase because the extra hours worked suddenly make you look like you're earning $45K a year instead of the $36K.......so the money gets taxed at a higher rate, but since you've worked more hours, there is obviously more money....no matter the higher rate.


Tax rates as of 2000: HERE.


You'll notice at each bracket, it's the amount above the last bracket that's taxed at the next level...topping out at 39.6% as the highest bracket.

 

[spidey07]

cool, thanks.

anybody have information on "tax brackets", i REALLY need to lower my taxable income.

 

[kranky]

You can find the 2000 and 2001 brackets here.

For singles, the first $27,050 is taxed at 15%, then from there up to $65,550 is taxed at 27.5%, and from there up to $136,750 is taxed at 30.5%. Remember this applies to your "taxable income" from your income tax form, not necessarily your total wages.

 

[Michael]

spidey07 - I intend on increasing my taxable income as much as I can. I own a house (mortgage interest deduction) and max out my 401(k) so as to manage my taxes, but I want more income, not less. Paying more taxes is good (assuming no rate change), it means you made more income. Paying more than you have to is bad.

Michael