The six-figure club.

My paystub says $###k but my W-2 only says $##k, I guess because my health insurance premiums are pre-tax.

So I guess the government doesn't acknowledge my 6 figure status.

 

I understand where your thinking is heading, and it's logical thinking but based on false premises.

For a single person federal tax brakets are:

10% $0 to $9,950
12% $9,951 to $40,525
22% $40,526 to $86,375
24% $86,376 to $164,925
32% $164,926 to $209,425
35% $209,426 to $523,600
37% $523,600 or more
​

So a single person earning a taxable earning of $86,375 would pay $14,751 in federal taxes. Someone making $86,376 would pay $1471.24. Yes, their effective tax rate went up because of that extra dollar of income, by 0.0000008 percent.

The way American tax policy is structured, at no point does earning more significantly increase your effective tax rate. In fact, the more you earn, the lower your effective tax rate, especially when you consider property/sales tax and the fact that fica contributions are capped (not to mention it's figured on earned income, not interest/divides/capital gains).

It's basically the Monty Hall Problem. A contestant is given a choice of three options. After making a choice, the host reveales one of the two non selected options is a goat, then gives the contestant the option of changing their choice. From a logical standpoint, the contestant has a a 50/50 chance of winning so changing d0esn't make sense. Mathematically, it's a different story.
The Monty Hall Problem: A Statistical Illusion

From a tax standpoint, at no point should tax liability enter a workers calculations about earning more. Even if in the short term that young gun is paying out the wazoo in taxes, he is still making more which can be invested in any number of avenues that will pay dividends.

 

I have heard so many people over the years complain about having to work overtime despite making time and a half. They always say it all goes to taxes.

Correct me if I am wrong but I always tell them that sure you pay more taxes when you make more money, but you are taxed according to your total income. Not taxed according to how much your income is from OT.

It's not like they tax OT at a higher rate like they do for bonuses, my OT never shows up in a separate box on my W-2.

 

My guess is on the check the net may not be desirable but the tax return money they get will be much higher? I’ve heard this a lot as well.

 

The problem is the check annualized that pay period and assumes the maximum tax liability. So if 51 weeks of the year you earn $1,000 you're looking at about $200 in taxes (federal, state and fica), but one week a year you have a $4,000 pay check and they'll take $1,200 or so, which makes it look like you're paying a boat load in taxes. Looking at it over the entire year it's a percentage point difference. In the moment it hurts, but overall it's negligible. This is one of the ways that a certain "tribe" convinces average workers that higher earners pay a lot more in taxes.

 

Right, so it taxes you that week as if you make that 52 weeks per year. Giving the fact that you don’t make that 52 weeks per year, you get a sizable “refund” of those paid taxes in your return correct?

 

Yes, but psychologically it doesn't matter.

One of the things drummed into me during my teacher prep courses is that negatives register more than positives. If you criticize someone, then praise them then they only focus on the negative and think they're horrible. However, if you "sandwich" criticism with two different positives, the student is more likely to internalize the criticism in a productive manner. When examining a teacher/student interaction, in aggregate it takes 7 compliments for every criticism for a teacher to be classified as "non-biased" by outside observers.

When coupled with the time elapsed between the two events (please see "Don't Shoot the Dog", one of the greatest books for teachers - https://www.amazon.com/Dont-Shoot-Dog-Teaching-Training/dp/0553380397), there is no correlation between the "extra" taxes paid in a given week and the eventual tax refund - particularly when most people don't have their with holding set properly. They internalize that more work means significantly higher taxes.

 

No, this is one of the biggest misconceptions of all time. As per my very Jewish top tier accountant, "it's always better to make more money, period".

 

This is correct. At the end of the year your tax rate is still the same for Reg and OT pay.