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Hey Forum.

I have a question about payroll and taxes. Is overtime taxed differently than regular hours?

The reason I ask is this: I get paid hourly, and anything over 40 hours is 1 1/2 pay. In reality, I work between 70 and 80 hours a week, but lets say the average is 75 or so. I've noticed that the difference between a 50 hour week and a 75 hour week isn't really that much. What's the story on this? I know the Bush Tax Cuts expired, but i'm not sure if that is effecting me or not. Someone school me on taxes?

affecting*

They are going to withhold at a higher rate because they expect you to be in a higher tax bracket since you are making so much more.

Ok... so let's say they are holding about $600 every 2 weeks. Am I going to get that back? How do these tax brackets work.

I sound like a newb... but I know nothing about taxes, except that I could pay rent with what the govt is holding from my checks every month.

I know the more I work the more they tax

snatchel wrote:Ok... so let's say they are holding about $600 every 2 weeks. Am I going to get that back? How do these tax brackets work.

I sound like a newb... but I know nothing about taxes, except that I could pay rent with what the govt is holding from my checks every month.

It is much too complex to explain in a post, but basically the more you make in a pay period the higher the rate of withholding. It's computerized now in most payroll situations but you go into the withholding tables with the amount of gross wages and the number of exemptions claimed and get the amount to withhold. The more you make the more is withheld, and at higher and higher rates. For those whose income varies significantly with overtime, you are being over withheld in the high income pay periods and under-withheld in the lower pay periods because your average over the year will be more than the lowest and less than the highest, capiche?

Depending on how many exemptions you claim and how much you actually have to report you may get some back, or may pay more. Sit down with a tax preparer adviser and see if you are claiming the right number of exemptions. The goal is to match as closely as possible the amount withheld and the actual tax you will owe. I am astonished at the people who celebrate getting a tax refund, like it was a wonderful thing. It's not. You lent your money to the government for most of the year, interest free. I tried to make sure my little brother, CPA, got me as close as possible to what we would pay. If not, I ratted him out to mom.... boy does he hate that!

One of the reasons I started looking to move back to Texas is that I was paying more to the State of California in income taxes than most people MAKE. However, I discovered a sure fire, perfectly legal, way to lower my tax bill...... make less. Now I make less than 5% of what I used to make.

JALLEN wrote:...
However, I discovered a sure fire, perfectly legal, way to lower my tax bill...... make less. Now I make less than 5% of what I used to make.

Had you asked, I could have suggested another option to lower your taxes - give ME 95% of what you make.

snatchel wrote:Ok... so let's say they are holding about $600 every 2 weeks. Am I going to get that back?

I don't have enough information to even start guessing. In general, if somebody paid (or their employer withheld) more than they owe, and they timely file a return, they will have the overpayment refunded. On the other hand, if they paid/withheld less than owed, they are expected to make up the shortfall. If the difference is large enough, they may also be assessed penalties and interest.

Awesome. Good to know that I've been working so hard to better support ObamaCare, Egypt, Welfare, etc.

snatchel wrote:Awesome. Good to know that I've been working so hard to better support ObamaCare, Egypt, Welfare, etc.

That's how the system is designed. The more you work the more the government takes to redistribute to people who don't.

snatchel wrote:How do these tax brackets work.

They are progressive. The more you earn, the bigger the cut the government takes from each dollar.

Let's take the hypothetical example of Tammy the Taxpayer. Tammy is young and not ready to get married yet. She also managed to avoid getting knocked up, so no Welfare or tax breaks for her. Tammy is smart, hardworking and has job skills that are worth $25/hour to an employer in a full time job. Between SS and FIT, the government takes about 20 cents of each dollar she earns.

Suppose Tammy goes out and gets a part time job earning the same hourly pay. If she works 10 hours per week there, the government gets 32 cents of each dollar Tammy earns at her second job.

Generally speaking overtime is treated the same as regular time. However, the withholding is calculated as if you made the same overtime ALL YEAR. So it may vary. So if you are making an extra $600 a week they calculate that times 52 and calculate the taxes based upon that. Obviously you may not get that much OT all year and your tax rate varies. At the end of the year its all lumped to together and your tax calculated. So you may owe or you may get money back. I hear a lot of people complain about OT because it pushes them into the next tax bracket and they think it costs them more money because the higher rate is applied to all of their income. So they think it costs them money to work OT. This is a common misconception. At the end of the year your tax is calculated based upon totals as you move up the tax brackets.

If you are in the 10% bracket and you make $500 more than the 10% bracket which moves you into the 15% bracket you do not pay 15% on ALL of your income. You pay 10% on X and 15% on the $500 that you made over X.

2012 Single Income Tax Brackets:
•10% on taxable income from $0 to $8,700, plus
•15% on taxable income over $8,700 to $35,350, plus
•25% on taxable income over $35,350 to $85,650, plus
•28% on taxable income over $85,650 to $178,650, plus
•33% on taxable income over $178,650 to $388,350, plus
•35% on taxable income over $388,350.

Married filing jointly rates:
•10% on taxable income from $0 to $17,400, plus
•15% on taxable income over $17,400 to $70,700, plus
•25% on taxable income over $70,700 to $142,700, plus
•28% on taxable income over $142,700 to $217,450, plus
•33% on taxable income over $217,450 to $388,350, plus
•35% on taxable income over $388,350.

Correct and if somebody is paid $20/hour then the last hour in the 15% bracket earns them close to $15.50 take-home after income tax and social security. The first hour in the 25% bracket only nets them $13.5 per hour. That $2 reduction in effective pay continues for every hour they work after that, unless they cross into the next bracket and take home even less per hour for their labor.

IF you get a bonus, it will also be taxed the same way. Just an FYI. Taxed at the highest rate they can tax it and give you a "refund" when you file next.