Take Home

[hamon]

Here is a question regarding bi-weekly take home.

I was wondering I am trying to figure out my take home pay if I get over time pay on top of my pay, basically I want to figure out how much I will be taxed extra..

are there any calculators out there?

[Bullseye]

Yep, here you go;

http://www.walterharder.ca/Take%20Home%20Pay%20Calculator.html

[brunes]

Take the amount you will ear in overtime. Now subtract from it the amount which would make you not say "damn!" when you open your paystub.

That is your answer :p

[speedyforme]

A good rule of thumb is take your overtime pay and take off about 50%, that is what you will take home.

[theguyz]

I have a very good way, its not accurate but good for quick calcs.

take your normal pay every 2 weeks, now for every hour overtime ad your hourly wage and thats how much you will see, now at income tax time you will get taxes on those extra hours by another %. See government smart takes 50% right at start and another 25% end of year. SO you make less per hour in overtime in longrun, but immediatly see more.

[hamon]

Theguyz - That's a really good way to average it out..

[CUVShopper]

See government smart takes 50% right at start and another 25% end of year. SO you make less per hour in overtime in longrun, but immediatly see more.

That is not accurate; employers are required to withhold a certain amount at the source. What you pay in taxes at the end of the year when you calculate your return is based on your annual earnings, does not matter how you earned it (overtime, straight time, vacation, etc.). Your tax rate is not calculated weekly, it is calculated when you do your tax return. So, if your employer withholds a large amount during the year; you will get it back when you do your tax return.

So, go ahead and work overtime; at the end of the day it will still be taxed at your marginal tax rate (probably around 20%).

[i6s1]

Yeah, multiply your overtime pay by 100-(your marginal tax rate). Divide by 100.

If you earn over ~40k, then there will be no change to the amount you pay for EI and CPP, you'll just max out sooner. If you earn under that, then add that cost to your marginal tax rate. If your overtime will put you over 40k, then it gets complicated. (But bear in mind that you do get the CPP back if you live long enough. Hopefully.)

If you have any other deductions that are based on a percentage of your pay, you'll have to account for that. Examples:
-Pension
-Union Dues
-Stock Purchase Plan

If anyone says "If you work OT, it puts you into a higher tax bracket and you'll make less money," tell them that they're stupid and shouldn't be giving financial advice.

[speedyforme]

agreed on the responses, working overtime does not get taxed at a higher rate in the end unless it pushes you above an income tax bracket, BUT when you do get paid for it, you will see a big "tax" on it, in the end you'll get most of it back based on your tax bracket

[taylor192]

Unfortunately some employers use terrible accountants, who will tax your overtime at a rate equivalent if you were earning this much all the time. Ie if you were making $50K you'd be paying about 30% tax on any extra income, yet if you suddenly make $1K on a biweekly paycheque, that's potentially an extra $26K/yr, and pushes you closer to 40% and your accountant might tax you at that rate.

[brunes]

Unfortunately some employers use terrible accountants, who will tax your overtime at a rate equivalent if you were earning this much all the time.

This doesn't have anything to do with employers having "terrible accountants", it is actually the law. Employers are REQUIRED to withhold surplus tax this way.

If you normally gross 52K / year (1K / week), and then one week because of a bonus or overtime you gross 2K, that 2K is going to be taxed as if you earned 104K / year.

I know it is stupid, but that is just how it is.

I think it is based on the idea that the CRA has no idea in March if you are going to make this much on average all year or not, and thus they assume by default that you will, because they would rather withhold surplux tax for all these people and then give out refunds, then go without all that money into general revenues all year.

[Bullseye]

As a payroll administrator, maybe I can shed some light here...most employers use a payroll service, such as ADP or Ceridian, and payments that are over and above regular earnings can be treated in two ways by the payroll input person - 1) they lump it in as Brunes says and you get taxed as if that is your new salary for the whole year, meaning you're killed in taxes. 2) they process it separately from regular pay, and the payment is amortized over the year, meaning you get taxed much closer to your proper rate. The proper way is option 2, of course.

For those still using manual tables, or TOD, if done the proper way, thise would result in the same deductions as option 2 above. However, many payroll people don't do it this way, and use the tables in a way that results in higher taxes, as in option 1 above.

So it really all depends on the competency of your payroll person. Often the people entering payroll in a smaller business is the business owner, a secretary, or an accountant who doesn't understand payroll completely, so it often gets done wrong. Not a huge deal, as it all works out at tax time, but certainly matters to those who would rather have the money now than later!

Brunes is technically incorrect, though, about how CRA requires it to be done. CRA does allow overtime/bonus, etc to be processed without killing the employee with tax, it just has to be done correctly. The correct way is more complicated, hence the problems.

[YYC27]

This doesn't have anything to do with employers having "terrible accountants", it is actually the law. Employers are REQUIRED to withhold surplus tax this way.

If you normally gross 52K / year (1K / week), and then one week because of a bonus or overtime you gross 2K, that 2K is going to be taxed as if you earned 104K / year.

I know it is stupid, but that is just how it is.

I think it is based on the idea that the CRA has no idea in March if you are going to make this much on average all year or not, and thus they assume by default that you will, because they would rather withhold surplux tax for all these people and then give out refunds, then go without all that money into general revenues all year.

There is, actually, a "cumulative averaging" method employers can use when calculating source deductions that looks at the whole year-to-date instead of the pay period in isolation.