I have been looking for part time jobs to pay down some bills. Lately I have had a opportunity to make some really easy overtime money working evenings and 12-13 hour shifts on my days off. I had 40 hours OT on my last check and some 80 hour weeks coming up. I know the common wisdom has been anything over 16 hours a week gets taxed heavily but after doing a bit of research I am not sure how true that is. From what I read today OT is not taxed any different than straight time. With the new tax rate I will be at 22% regardless and my OT rate is about 2X what I could expect from a part time job so I figure I should grab it while it’s available. Am I missing something?
I say work it. All of that tax nonsense gets worked out in the wash by a competent tax accountant. I work 16-18 hour days regularly, and they tax the crap out of those checks, but I get a ton of money back every year with all the write-offs and stuff.
We have some finance professionals on this site that will hopefully chime in with more accurate info, but in my experience, in years that I work more overtime, I make more money. It does not get excessively taxed away, though it might seem like it when you are holding the paycheck and stub in hand.
I thought it was taxed the same until you hit the next tax bracket. Now im curious as well.
It may be taxed differently initially, but at the end of the year it should be under the same tax bracket… or am I missing something as well?
Edit, just saw anove post: same i see with bonuses. It seems each check has its own “bracket”, but what really matters is at the end of the year.
Honestly I would contact a tax person in your AO and ask about it. If you make too much money overall you will get put into a higher tax bracket which will suck. Figure out what the threshold is for the next tax bracket up and how much of a dent that will put into your income. Get as close to that threshold as possible but don’t go over it.
Tax brackets only apply to the amount of income in that bracket.
It’s not like if you hit a higher bracket they tax everything at the new rate.
Just the marginal amount is taxed at the new rate, everything else is at the lower rate.
Overtime and bonuses are often withheld at the higher marginal rate, so it might seem like you’re getting taxed more for that check, but it doesn’t work out that way in the end.
Exemptions and phaseouts are another matter entirely.
Your total income for the year determines your tax bracket and therefore the amount of income tax you pay. The source of the income doesn’t matter, overtime vs regular time. It’s all about your total income for the tax year. If they have overwitheld tax during the year relative to what you owe, you get a refund and the sincere gratitude of your Government for the interest-free loan. If they underwithold, you have to pay up the difference and up and you get a warning from your Government not to do that again.
Pro: A little extra money is nice.
Con: That time is gone forever. You sold it. Time that could’ve been spent with family, friends or just doing something you enjoy. You can not buy that time back with any amount of money, ever. It’s gone. No one wishes for money as the end draws near.
This is one thing to give serious consideration.
The other is what tax bracket you are in. If you already hit the max bracket, and your state income tax and your federal tax are pushing 50% of your OT gone to taxes, is it worth it?
Want to make more money? Figure out what you spend most of your money on, pull an EIN and start a sideline business where everything you buy and most household / office purchases become deductible. You will probably double your tax refund simply by claiming back most of your FICA which was your money to begin with. You can either spend it on your sideline business or let the government keep it.