I usually opt to work more during the holiday season because we get higher wages (holiday pay). I signed up for a lot of extra days and my co-workers keep telling me that because I’ll make more money, I’ll get taxed more. So I’ll be receiving less pay than I’d usually make without the overtime. Is that right? I feel stupid right now.
In: Mathematics
Taxes are made artificially complex to keep accounting companies in business. Technically, the government agencies (federal, state, and local) have all the information to do your taxes for you, then send you your finished statement for review and to add deductions.
But I digress. As others have mentioned, this is a common logic mistake. You are taxed a certain amount up to the lowest tax bracket maximum. No matter how much you make under that amount, it is all taxes the same. Once you exceed that amount, only the money above that is taxed higher.
NOW. And this is my guess as to why this myth continues to come up.
Let’s say your normal paycheck is $900/ week. That would be $46.8k per year. All of your earnings would be under the lower tax bracket and it would all be taxed the same flat rate. Now let’s say for the next month you work a ton of overtime and your check increases to $1,300/ 2 weeks. That would be $67.6k/year if you got that pay all year long.
Most payroll companies determine tax withholdings from your check based on each check * 26 weeks in order to make sure you don’t owe money at the end of the year. You may have more taxes taken out on those paychecks HOWEVER when you file your taxes with your actual annual taxable income listed, you will get the amount you overpaid back.
TLDR. Work the OT if you like. You will make more money in every situation.
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