Are There Tax Benefits for Working Less Hours?

Jen says her coworkers are telling her not to work more than 10 hours of overtime per week due to taxes. Dave thinks Jen's coworkers are idiots.

QUESTION: Jen in Pennsylvania says her coworkers are telling her not to work more than 10 hours of overtime per week due to taxes. Dave thinks Jen’s coworkers are idiots.

ANSWER: Your coworkers are idiots. If you make $75,000 a year, married filing jointly, you’re in a 25% tax bracket. If you work overtime and make an extra $1,000, you’re going to give the government $250 of that. You’re going to put $750 in your pocket. That’s it. There are no 100% tax brackets in this country … yet.

What causes this misconception—for people who can’t do math sometimes—is this: Sometimes, some types of pay are required by the IRS to have a higher withholdings. For instance, if you get a huge bonus check, it may have a higher withholding on it. But withholding just means how much they require you hold back in case you owe taxes. Your actual calculation on your taxes doesn’t change. It’s just how much is withheld from the check—how much they send to the government out of your check for taxes. When you file your tax return at the end of the year, you file at your actual level of taxes—not what was withheld. If you had too much withheld, they send you a tax refund.

If you’re getting a tax refund all the time, it’s because you’re having too much withheld. That could be if you’re in a bonus scenario or you’re in a commission scenario or something like that where they are holding too much out on you, and it could be that you’re just having too much withheld in a wage scenario. If you’re always getting a refund, it’s because you have too much taken out of your check. But just because they take too much out of your check doesn’t mean they keep it. They give it back to you in the form of a refund. You want to have the right amount taken out of your check because you don’t want to loan the government this money all year long and then get it back in April and act like Santa Claus lives in Washington, D.C. or something. He doesn’t. I know him personally. He lives in the North Pole—nowhere near Washington, D.C. And he doesn’t believe in global warming either, so there.

The bottom line is working overtime, there is no possible scenario—zero chance—that the government is going to take all of your money that you earn as a result of working overtime and/or some of your other money because there is not an extra withholding—there’s not even a 100% withholding. Your check is always going to have something in it when you work overtime. Even this idiots get that part. Isn’t that sad? This is one of those examples where you stop and you say, “Don’t take financial advice from broke people.” Really. Just stop and think, “Loser!” and move on. This is not where you get your financial advice.

You work all the OT you can work. You put the money in your pocket, you make sure you have the right amount withheld from your check so that you don’t get a tax refund, but if in the off chance that you don’t have your taxes calculated properly—the withholding is not calculated properly—you’re not going to be charged more. There’s not a higher tax rate on overtime or bonuses. There is only possibly a higher withholding. That’s all. There is no situation where you lose by working overtime. You always come out ahead mathematically and financially.