Right now I'm getting paid $20/hour 8 hours 5 days a week (40 hours). Overtime is time and a half. I live in California and I'm trying to figure out at what point does working "X" amount of overtime become NOT a financial benefit to me?
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Is overtime worth it?
- Thread starter phas3
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I live in Maine and have actually done some calculations to figure this out. I make 16.10 an hour and anything more than 5 hours begins to get eaten up by taxes real quick.
cost... benefit... analysis...
Overtime is always worth it if you need or want the extra income more than you need or want the time lost while working extra. In many jobs people volunteer for overtime and extra shifts at time and a half or more because they don't have any other competing responsibilities and could use the extra cash. Some people never work overtime because their family or personal time is more valuable to them.
It's a personal choice dependent upon your specific situation.
Overtime is always worth it if you need or want the extra income more than you need or want the time lost while working extra. In many jobs people volunteer for overtime and extra shifts at time and a half or more because they don't have any other competing responsibilities and could use the extra cash. Some people never work overtime because their family or personal time is more valuable to them.
It's a personal choice dependent upon your specific situation.
Always worth it as long as you don't burn youself out. I've done 60-70 for a couple months but it starts to wear on you pretty quick. As long as you keep your sanity, stay ahead on rest and have a bit of a life work as much as possible because the extra will never hurt.
As others stated... At my job there are four weeks, every year, where we work straight - 13 hr days each day for 26 days.
Money is great, taxes suck, but at the end of the first week your dreading the remaining three.
Anyway, you were probably looking more for a number... This is dependent on is a case by case scenario based on the persons exemption and dependent withholdings.
I've calculate mine to be about 16 hrs a pay period. Anything more results in more taxes being taken out.
Money is great, taxes suck, but at the end of the first week your dreading the remaining three.
Anyway, you were probably looking more for a number... This is dependent on is a case by case scenario based on the persons exemption and dependent withholdings.
I've calculate mine to be about 16 hrs a pay period. Anything more results in more taxes being taken out.
I am reading your post to mean (based on the fact that you gave us your state) at what point does making more money/moving into a new tax bracket hurt you? If so - and sorry if I am misreading your point - but the OT will never hurt you, financially speaking. We have a progressive tax structure and if you were to make enough income to jump into the next bracket, only those dollars made over that threshold will be taxed at the higher rate of the new bracket. So not matter what, every hour worked will result in more money in your pocket, even after taxes.
Is this the question? This is a common misconception with the way taxes work.
Is this the question? This is a common misconception with the way taxes work.
Do you move into a new bracket or something? I wouldn't think so at $16.10 an hour. I have a friend who refuses to work any overtime ever because he claims that it actually costs him money, as in, the taxes are more than the pay. That makes no sense.
And I thought what duncan above said, as well.
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Okay... so your unadjusted gross is $41,600 a year. That puts you close to the CA max of 9.3% anyway, so extra OT won't matter there. That also puts you in a 25% IRS bracket and the next bracket does not kick in until $85,000. So for there to be any tax consequences you would need to work enough OT to over double your income, or (85k-41k=44k 44k/30=1,466 hours) around 1,466 hours OT a year to even get in the next bracket which is only 3% more to 28%.
I'm not even including standard deductions and such that make this even more favorable for you.
The tax code is structured such that the higher rates only impact the incremental increase, and not the whole amount. So if your income went from 85k to 100k, only the incremental 15k increase is subject to the higher 28% and not the whole 100k.
Bottom line is in your income bracket you almost could not work enough OT for it to have any appreciable impact on your tax situation and how much OT you want to work is more of a quality of life and social issue for you that only you can decide.
I have been in situations where significant, mandatory OT occurred and the first couple paychecks I was like "WOW I'm rich!!", but after that I got to the point I just wanted to go home rather than have the money.
why people seem to think OT is taxed at a much hire rate that everything else they are wrong.
The reason why any money from OT has that hire tax on it is because all that money is going straight into your top tax braket.
For example any bonus I get is going to have 25% taken out in taxes because my base income is in the 25% tax bracket so any extra pay I make is automatically fall into that margin. Same with overtime pay. You base pay (40hr/wk) sets you at some income bracket and what ever that top one is for you is going to be the rate all over time is tax at. For most people it more than likely will be 25%
The reason why any money from OT has that hire tax on it is because all that money is going straight into your top tax braket.
For example any bonus I get is going to have 25% taken out in taxes because my base income is in the 25% tax bracket so any extra pay I make is automatically fall into that margin. Same with overtime pay. You base pay (40hr/wk) sets you at some income bracket and what ever that top one is for you is going to be the rate all over time is tax at. For most people it more than likely will be 25%
Unless you are working an extra 1600 hours per year, overtime will always give you a net positive income. You'd have to make so much to get into the next tax bracket for it to become an issue, which is highly unlikely.
For me it takes a five hour minimum for it to be worth the inconvenience. I stop at a twenty hour max over a two weeks period. After that the additional taxes make it not worth the net income. Considering getting OT here is rare at best it's rarely an issue.
I don't follow your logic. The top CA rate is 9.3% and the top IRS rate is 35%, so even if OP worked 24/7 and never slept at 6,680 hours a year OT... OP will still would have a net positive income from the OT yes? Am I missing something here?
No matter how high the tax brackets or at what income level, as soon as you earn a single penny more, you have more net income in your pocket. Higher tax brackets are only applied to dollars over the tax bracket itself, not retroactively to money you've made in a lower tax bracket.
So with a progressive tax system, keeping it simple, let's say you have 3 brackets, 10%, 20% and 30% and the salaries where you go to the higher bracket are 10,000$, 20,000$ and 30,000$.
Your first 10,000$ is tax free. Your 2nd 10,000$ is taxed at 10%. So if you make 20,001$, you pay :
0-10,000$ : 0% 0$
10,000$ - 20,000$ : 10% 1000$
20,000$ - 20,001$ : 20% 0,20$
1000,20$ dollars. You've thus made 19,000.80$ net income. Now let's say someone makes 19,999$ :
0-10,000$ : 0% 0$
10,000$ - 19,999$ : 10% 999.99$
He's made 18,999.01$.
Easy enough (not singling you out WeaselBoy, I know this is what you were also getting at) ? No matter how much little money you make over a bracket, going over brackets does not result in lower net income.
I have heard this as well over the years and it never made sense to me. Work more, get paid more. Taxes would need to jump up a lot to overcome the 50% more you are making with overtime.
Love overtime because I love money. But most of my overtime is done at night so it does not interfere with my family life. You have to make the decision of family or money as that is what it usually comes down too.
Thank you for the awesome replies guys you guys hit the nail on the head. Now I have a question with going exempt for a month and also number of allowances on your w-4.
Allowances: I'm a single male, I want to keep as much money as possible on every pay check and I also don't want to get a tax return at the end of the year. How do I go about that?
Exempt: Going exempt for the month only applies to federal tax? What about California and SDI and other stuff? Is it wise to go exempt for a month or two throughout the year?
Allowances: I'm a single male, I want to keep as much money as possible on every pay check and I also don't want to get a tax return at the end of the year. How do I go about that?
Exempt: Going exempt for the month only applies to federal tax? What about California and SDI and other stuff? Is it wise to go exempt for a month or two throughout the year?
The goal is to make your tax withholding through the year match the amount you owe as closely as possible, so that you neither have to pay too much or get too large a refund come tax time. How much withholding will be required to do that will depend on the complexity of your situation - the IRS calculators help determine how many allowances you're entitled to, but IIRC, they don't completely answer the question. I'm sure if you do some searching, you'll find more comprehensive calculators online.
Also, while it's natural to want to maximize take-home pay, it's also a good idea to pay for as many needs with pre-tax dollars as you can, as well as to put away as much as possible pre-tax. How much of this you can do will depend to some extent on what's offered at work.
http://www.irs.gov/pub/irs-pdf/p15.pdf
Here is the 2012 IRS tax table (from linked PDF). Right now you are making $1,600 every two weeks (I'm going to assume you get paid every two weeks for this example). Even if you worked say 60 hours OT your gross pay would be $3,400 [1,600+(60*30)]. If you look in the table, even at $3,400 every two weeks you are still at the 25% rate... and just over that you bump into the 28% rate. Remember only the amount over the $3,400 (actually 3,377 in the chart) falls into the 28% rate. Then that 28% bracket runs up to almost $7,000 every two weeks, and I don't think you can work that much OT
.California FTB (Franchise Tax Board) rates work pretty much the same way.
I guess what I am trying to say is at your income level working some OT is not going to have any impact at all on your tax rate. You will pay more tax due to making more money, but at the same rate.
I would not mess around trying to go exempt or anything because as I said, your rate will not change and going exempt with that OT coming in could result in you owing a bunch of money at the end of the year.
Both IRS and FTB have online calculators you can use to estimate your taxes. You might play with that with some OT added in to see where you sit and if it looks like you would have a big refund coming you could consider maybe changing your withholding just in general (not because of the OT necessarily).
SSI/SDI etc are all going to happen on their own and nothing you can do with changing exemptions etc can be done there. CA FTB and IRS are your only variables.
You might consider stashing some of the OT in a deferred comp. or similar tax avoidance vehicle if your employer offers such a thing.
Unless you get more deductions somehow, you are just going to have to pay.
Maybe get married and have lots of kids! Extra deductions if she is over 65 and blind.
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I love reading some of the stuff on the community discussion. definitely learn something new every day.
For me, it is about striking a balance between work and your personal life. Everyone will have different ideas about how that balance should be. I agree with others that have said, that it is ok as long as you are not burning yourself out.
I was putting in about 100 hours a week for two years at a start up that I didn't own a percentage in. They then offered me a 10% stake; great I thought. . . until I got really sick. Took me a year to get back on my feet and they reneged on the offer of ownership. Since then it's been 40 hours a week, nothing more. As soon as I find something new, I'm out.
Moral : I worked myself to near death; got treated like crappola after that. No, not worth giving up life for.
Moral : I worked myself to near death; got treated like crappola after that. No, not worth giving up life for.