How to calculate effect of hitting a higher tax bracket on my net pay? My regular federal payroll income tax rate is about 28%. But if I work over time, the federal payroll income tax rate seems to jump to 33%. I'm not sure how to calculate point at which the 33% tax rate bracket is hit and if it is worth working at that tax rate. It seems that when I hit the 33% tax bracket, I have to work two hours extra just to cover the jump from 28% to 33%. I earn a hourly rate of about $30, and earn time and a half after 40 hours.
The increase in tax is an extra 5% on the additional money you earn. You never have a lower take home because some of you hours are taxed at a higher rate.
Withholding for each paycheck is calculated based on the gross of that paycheck less any pretax deductions. But when you file your tax return, if too much is deducted you get the extra refunded. So hitting a higher tax bracket doesn't really increase your tax anywhere near that much once you figure in an increased refund. The tax on the amount you would have earned without the OT doesn't change. The tax on the extra, into the next bracket, is probably 25% for federal income tax, plus the 7.65% for ss and medicare, plus state and local taxes if there are any where you live. So the total tax on the extra that you earn might be around 1/3, but it doesn't change the tax you end up paying on the base amount - if more is withheld, then your refund is larger than it would have been.
Tax rate bracket is determined by gross pay, not net pay. The surest way to get the info is to obtain a booklet call Circular E from IRS. You can call, email or request form. Go to irs . The Circular E is the Employer's Tax Guide book, in which you will find payroll withholding schedule of people with various exemptions and pay periods (i.e., weekly, bi-weekly, semi-monthly and monthly). Look for the schedule which applies to your specific circumstances. You will then find the gross income amount at which your tax bracket changes.
