Help me with my paycheck

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.

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.

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.

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.