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
Yes (to your title question of “do I still get more money even though I’m taxed more?”).
Lets compare you (working more) to your coworker (working less):
– You and your coworker *both* get taxed at lets just say 15% on the first $50,000 you earn – you both pay $7500 in taxes so you bring home $42,500.
– You work overtime throughout the year and earn an *additional* $10,000, now because your total income went over $50k, you go up to the next tax bracket – **however, this bracket only affects money earned beyond that $50k**. So you pay 20% on the extra $10,000 earned – or $2,000 meaning you bring home an additional $8,000.
In the above scenario, the extra $10k you earned caused your *tax bracket* to go up, **however, it does not affect what you would’ve paid in taxes if you didn’t work any overtime**. So your total take-home pay is the $42,500 you would’ve normally had, **plus** an additional $8,000 you earned in overtime (for the above scenario), for $50,500 total vs the $42,500 your coworker brought home.
So yes, your tax bracket went up but brackets **only affect the money you earn after reaching each bracket**.
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