Income Tax Question

[royalfan5]

So later this year, I will move into a higher tax bracket than what I have previously been in. Once you exceed the amount that puts you into the higher bracket do they automatically increase the amount withheld from your check? Or is everything adjusted at the end of the year with deductions?

[Frozen Sooner]

Yeah, sorta.

What they do is they take your check, annualize it, then calculate your deductions based on the annualized income.

Or so I'm told.

[SoonerInKCMO]

They automatically increase the amount they take out. And anywhere I'm familiar with, it's done on a check by check basis. So, if you had a bonus or some other lump sum added to your regular paycheck, that check would be taxed at a higher rate. For example, when I left my previous employer, I cashed out all my unused vacation - a little more than $10k. They taxed the hell out of that check.

[royalfan5]

Yeah, sorta.

What they do is they take your check, annualize it, then calculate your deductions based on the annualized income.

Or so I'm told.

So if they annualize it, there shouldn't be a sharp drop in my take home pay in August or September, then?

[Hamhock]

So if they annualize it, there shouldn't be a sharp drop in my take home pay in August or September, then?

i don't follow. what makes you "move into a higher tax bracket"? are you getting a raise?

if you're getting a raise, there shouldn't be a drop in your take home at all.

[Frozen Sooner]

You should never have a drop in your take-home pay due to an increase in your marginal tax rate.

Of course, if you upped your 401(k) contribution, you might. :D

[royalfan5]

i don't follow. what makes you "move into a higher tax bracket"? are you getting a raise?

if you're getting a raise, there shouldn't be a drop in your take home at all.

Having a legitmate job. Being a full time student for 7 years doesn't pay well.

[royalfan5]

You should never have a drop in your take-home pay due to an increase in your marginal tax rate.

Of course, if you upped your 401(k) contribution, you might. :D

The 401K won't kick in until January, at which time I plan on maxing it out.

[Hamhock]

Having a legitmate job. Being a full time student for 7 years doesn't pay well.

the new paycheck from teh new job, should take into account the new tax bracket.

[Frozen Sooner]

So if they annualize it, there shouldn't be a sharp drop in my take home pay in August or September, then?

Say your pay now is $1000 per week, or $52,000 per year. Using round numbers that bear no relation to reality, say that your effective tax rate is 10%, so your federal withholding is $100 and your take home is $900.

You double your pay, and the marginal rate from $52,000 to $104,000 is 20%, which means your new effective rate is 15%, so they'll withhold $300 from your check each week.

At the end of the year, they'll have withheld $2,600+$7,800=$10,400 from your check, and you'll have made $26,000+$52,000=$78,000

$10,400/$78,000=13.3%, which is about what your effective rate should be for the entire year.

Edit: This is ignoring withholding other than federal tax. Also, I could be wrong. Hell, I probably am.

[royalfan5]

the new paycheck from teh new job, should take into account the new tax bracket.

Good. I didn't want to lock myself into an apartment lease that was for bigger checks, when part of the year would be slightly smaller checks. I figured it was annualized, but I figured it was better to ask and look slightly stupid, rather than finding out I was taking home less money later.

[Hamhock]

Good. I didn't want to lock myself into an apartment lease that was for bigger checks, when part of the year would be slightly smaller checks. I figured it was annualized, but I figured it was better to ask and look slightly stupid, rather than finding out I was taking home less money later.

i'm lost again. why will the checks get smaller?

[royalfan5]

i'm lost again. why will the checks get smaller?

Apparently they won't. I was trying to get clarification on whether the amount withheld would change once you earned your way into the next bracket. I didn't realize it was annualized already.

[Hamhock]

Apparently they won't. I was trying to get clarification on whether the amount withheld would change once you earned your way into the next bracket. I didn't realize it was annualized already.

gotcha. congrats on the new job.


save 10% and don't buy on credit.

[royalfan5]

gotcha. congrats on the new job.


save 10% and don't buy on credit.

I try for 15% and my personal motto is pay cash for quality.

[mdklatt]

save 10%

That doesn't include retirement saving does it? That seems awfully low.

[r5TPsooner]

My wife just received a raise last month and they automatically adjust the tax rate based on your deductions. If you're lucky, you will max out your F.I.C.A. tax like we will next month and the following month, we'll see an extra $825 in the take home pay.

If you claim anything but 0 on your taxes, I'd definitely reassess the situation.

[Beef]

http://www.irs.gov/publications/p15/index.html

[85Sooner]

Say your pay now is $1000 per week, or $52,000 per year. Using round numbers that bear no relation to reality, say that your effective tax rate is 10%, so your federal withholding is $100 and your take home is $900.

You double your pay, and the marginal rate from $52,000 to $104,000 is 20%, which means your new effective rate is 15%, so they'll withhold $300 from your check each week.

At the end of the year, they'll have withheld $2,600+$7,800=$10,400 from your check, and you'll have made $26,000+$52,000=$78,000

$10,400/$78,000=13.3%, which is about what your effective rate should be for the entire year.

Edit: This is ignoring withholding other than federal tax. Also, I could be wrong. Hell, I probably am.



I was gonna mention the State Tax withheld, Health insurance withheld, soso security withheld, medicare tax withheld, .............the walking tax, the foreign exchange students tax, the martin luther king tax, the war of 1812 tax .............and on and on. :)

[Collier11]

Having a legitmate job. Being a full time student for 7 years doesn't pay well.

Tell me about it

[Collier11]

Say your pay now is $1000 per week, or $52,000 per year. Using round numbers that bear no relation to reality, say that your effective tax rate is 10%, so your federal withholding is $100 and your take home is $900.

You double your pay, and the marginal rate from $52,000 to $104,000 is 20%, which means your new effective rate is 15%, so they'll withhold $300 from your check each week.

At the end of the year, they'll have withheld $2,600+$7,800=$10,400 from your check, and you'll have made $26,000+$52,000=$78,000

$10,400/$78,000=13.3%, which is about what your effective rate should be for the entire year.

Edit: This is ignoring withholding other than federal tax. Also, I could be wrong. Hell, I probably am.

so what youre saying is that you make $52k a year??? ;)

[AggieTool]

Moving into the next bracket, I would ALWAYS be prepared to owe next tax time. Then after that, things might even out.