Help me with my paycheck

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I work full time on a pediatric hospital unit (3 12-hour shifts per week). If we pick up OT we qualify for $50 per hour per diem pay for all hours over 40 for the week. I've been told not to pick up more than 1 extra shift per week or it will almost all go to taxes. Some people say they get it back at the end of the year and others don't comment on that aspect of it at all. I would think that working more is better than not working more but I don't want to work a bunch of extra if there is a tax loop hole that doesn't make it worth it. Anyone have insight to this?

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This has been discussed on here many times by people who are much smarter than I on the subject. I would use the search function to find them.

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Nurses can't help you with this. Your accountant can.

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It took a few pages back but someone did post a link that I found helpful from a few years ago. Thanks

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Specializes in Nursing Professional Development.

I agree that you might want to talk with a financial profession about your questions ... but here is my $.02.

Some nurses don't understand the way the US tax system works. As a result, they misunderstand what happens when someone suddenly gets a paycheck that is larger than normal.

1. The "system" doesn't realize that the big paycheck is unusual for you and that you don't make that much every pay period. So it taxes that paycheck at the rate appropriate for someone who makes that much money on a regular basis. When you eventually file your tax returns, that takes care of itself as your final tax bill is calculated based on your total earnings for the year, not how much you made on your highest-grossing pay period. So it looks like "all of it went to taxes," when in fact, you'll be getting most of that extra taxes back.

2. Some people don't understand how the tax brackets work. They mistakenly believe that when you are "pushed into a higher tax bracket," that higher tax rate applies to all of your income. It doesn't. That higher rate only applies to the portion of your income that falls into the higher tax bracket. So yes, if the extra income you earn working overtime pushes you into a higher tax bracket ... that money will be taxed at the higher level. But it won't increase the taxes on the money that is in the lower tax range.

So you will never lose money by working overtime and getting paid extra. It's just that the extra money you are earning might be taxed at a higher rate.

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Specializes in NICU.

Totally agree with llg. You will be taxed more on the paychecks that you have overtime, but will get the extra tax back when you file your taxes. What you need to be careful is to not go crazy on the OT because it might push you into a higher tax bracket.

Taxable income

[TABLE=width: 649]

[TR]

[TD=bgcolor: transparent] income is over—

[/TD]

[TD=bgcolor: transparent]but not over—

[/TD]

[TD=bgcolor: transparent]the tax is:

[/TD]

[/TR]

[TR]

[TD=bgcolor: transparent]$0

[/TD]

[TD=bgcolor: transparent]$9,225

[/TD]

[TD=bgcolor: transparent]10% of the amount over $0

[/TD]

[/TR]

[TR]

[TD=bgcolor: transparent]$9,225

[/TD]

[TD=bgcolor: transparent]$37,450

[/TD]

[TD=bgcolor: transparent]$922.50 plus 15% of the amount over $9,225

[/TD]

[/TR]

[TR]

[TD=bgcolor: transparent]$37,450

[/TD]

[TD=bgcolor: transparent]$90,750

[/TD]

[TD=bgcolor: transparent]$5,156.25 plus 25% of the amount over $37,450

[/TD]

[/TR]

[TR]

[TD=bgcolor: transparent]$90,750

[/TD]

[TD=bgcolor: transparent]$189,300

[/TD]

[TD=bgcolor: transparent]$18,481.25 plus 28% of the amount over $90,750

[/TD]

[/TR]

[TR]

[TD=bgcolor: transparent]$189,300

[/TD]

[TD=bgcolor: transparent]$411,500

[/TD]

[TD=bgcolor: transparent]$46,075.25 plus 33% of the amount over $189,300

[/TD]

[/TR]

[TR]

[TD=bgcolor: transparent]$411,500

[/TD]

[TD=bgcolor: transparent]$413,200

[/TD]

[TD=bgcolor: transparent]$119,401.25 plus 35% of the amount over $411,500

[/TD]

[/TR]

[TR]

[TD=bgcolor: transparent]$413,200

[/TD]

[TD=bgcolor: transparent]no limit

[/TD]

[TD=bgcolor: transparent]$119,996.25 plus 39.6% of the amount over $413,200

[/TD]

[/TR]

[/TABLE]

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Specializes in Nursing Professional Development.

Thanks for posting the numbers, GuyinBabyland ... but why would you caution against earning enough to move into a higher tax bracket? There is no need to fear that. The higher tax rate in the higher bracket only applies to the money above the minimum for that bracket: it doesn't apply to the person's entire income. For example, if someone moves from 25% bracket to the 28% bracket, the only money that is taxed at 28% is the amount over $90,750: the rest of the income is still taxed at the lower rates.

So there is no need to fear being pushed into a higher bracket.

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Specializes in Critical Care, Education.

Here's an idea - funnel some of that OT loot into your 401K / 403B. You'll have the satisfaction of knowing it's there without the tax bite.

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Specializes in Nursing Professional Development.
Here's an idea - funnel some of that OT loot into your 401K / 403B. You'll have the satisfaction of knowing it's there without the tax bite.

Also ... as you evaluate the benefits of working overtime (vs. paying the taxes on it) ... Don't forget to include any effect the overtime will have on your benefits. For example, my employer awards vacation time based on the number of hours actually worked, not your regular number of hours. So you are earning extra vacation time as well as money. Also, the amount of money contributed to your retirement plan by your employer may be based on a percentage of your pay -- which would be increased with overtime.

Those extra benefits can add up.

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Specializes in Acute Care Pediatrics.

I had coworkers who would go "exempt" on those checks. ;)

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Specializes in NICU.
Thanks for posting the numbers, GuyinBabyland ... but why would you caution against earning enough to move into a higher tax bracket? There is no need to fear that. The higher tax rate in the higher bracket only applies to the money above the minimum for that bracket: it doesn't apply to the person's entire income. For example, if someone moves from 25% bracket to the 28% bracket, the only money that is taxed at 28% is the amount over $90,750: the rest of the income is still taxed at the lower rates.

So there is no need to fear being pushed into a higher bracket.

Yes, you are correct. That is the problem with posting without proofreading it to make sure it makes sense. The way taxes are calculated on your paycheck and your tax bill at the end of the year are different. Overtime is taxed at your highest marginal tax rate on your paycheck. I forgot at the time I posted that they are different. I was mixing the two when I was thinking about value of working OT vs actual take home pay.

If I made $240 in overtime on a paycheck, it would yield me about $144 in net pay or 60%. I have a ROTH 403b with my employer, so they will take another 6% post-tax out of that pay. I would only get 54% of the extra overtime pay. That doesn't include county and local taxes. I would get about 50-52% of the overtime on my paycheck. Some of that will be returned to me when I get my tax refund, but in the mean time the government gets to have my money for free.

Working Overtime Is More Taxing Than You Think | Cato Institute

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Specializes in Nursing Professional Development.

If I made $240 in overtime on a paycheck, it would yield me about $144 in net pay or 60%. I have a ROTH 403b with my employer, so they will take another 6% post-tax out of that pay. I would only get 54% of the extra overtime pay. That doesn't include county and local taxes. I would get about 50-52% of the overtime on my paycheck. Some of that will be returned to me when I get my tax refund, but in the mean time the government gets to have my money for free.

Thanks for clarifying, GuyinBabyLand. I look at it differently. That fact that 6% goes into your Roth is not a bad thing in my book. It's being put in YOUR account to have for later. And for people whose employer is matching some of their retirement contributions, it means the employer is giving you more money.

And while I don't like giving the government the short-term loan until I file my taxes ... I'd rather get the money in the long run than not get it at all. And since I don't live "hand to mouth," the wait is no big deal. I end up with the correct amount of pay in the end.

And the example in the anti-government link you gave is not correct. The employer-paid payroll taxes do not come out of the employee's paycheck as a deduction. I just checked my pay stub and I have no payroll tax deductions at all! Also, that site is not considering at that the employee will "get any extra money back" when he/she files her tax returns. If you add that money back into the net amount received by the employee -- he/she DOES make more money working overtime than not working the overtime.

That website is a political one trying to sway voters. It is not an unbiased source of financial education.

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