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I just got a new job and I'm thrilled about it. The contract states that I am to be paid monthly which I'm okay with except my main concern is that I will have more money taken out of my check than if I were to get paid biweekly or semi-monthly.
The amount taken out will be the same, prorated. Payroll withholding is calculated by taking your gross salary, subtracting allowances for deductions, applying the tax rate and dividing by the number of pay periods. So for example, if your total withholding for the year should be $6,000, then $500 will be deducted each month ($6,000/12). If you get paid biweekly, then the deduction would be $6,000/26 as there are 26 pay periods.
If you earn $60,000 a year and are paid monthly, that's 12 pay periods of $5,000 each. If the tax is 25% (just for explanation purposes), $1250 is removed. Over 12 pay periods, that is $15,000.
If you are paid every 2 weeks, that would be 26 pay periods of $2307. If the tax is 25%, $577 is removed. $577 times 26 is $15,000.
WRONG..... your taxes are based upon the income of the pay period, not what your yearly salary is. How would the IRS or state tax authority know what your yearly salary is?!??!? How would they know you're not just an independent contractor who did work for them and is getting paid?
You withholdings are based upon your income in that pay period, which would be the month. YES, the tax withholding rate will be more than if you were getting paid bi-weekly and more than if you were getting paid weekly. How do I know? Here's my story:
I learned the hard way years ago when I worked for a company that decided to cheap out and pay us monthly rather than bi-weekly (to save on the amount they would be paying the payroll company). When I got my paycheck, I couldn't believe the amount of taxes taken out --- I think it was like a week's salary. Another time, a company I was working for (and being paid weekly) was sold to another company. The new company decided to pay us bi-weekly. Same thing happened. A LOT more was taken out in taxes than if I was being paid weekly.
Bottom line is, the tax people look at the money you have NOW and the tax rate is based on that, not on what you "might" make or not make for the year.
Your overall tax liability is based upon your annual wages. It doesn't matter if you get one oaycheck annually, 12, 24, 26, 52 or anything else, taxes are determined by your adjusted gross and compared to the marginalized tax rates. You owe the same.
It won't make any real difference on your check either. The IRS publishes withholding tables and they adjust for weekly, biweekly, semi-monthly and monthly schedules. Monthly withholding is going to be a larger amount than weekly, but you are getting 4+ times as much, so you would expect your withholding to be 4+ times as much too.
WRONG..... your taxes are based upon the income of the pay period, not what your yearly salary is. How would the IRS or state tax authority know what your yearly salary is?!??!? How would they know you're not just an independent contractor who did work for them and is getting paid?
You withholdings are based upon your income in that pay period, which would be the month. YES, the tax withholding rate will be more than if you were getting paid bi-weekly and more than if you were getting paid weekly. How do I know? Here's my story:
I learned the hard way years ago when I worked for a company that decided to cheap out and pay us monthly rather than bi-weekly (to save on the amount they would be paying the payroll company). When I got my paycheck, I couldn't believe the amount of taxes taken out --- I think it was like a week's salary. Another time, a company I was working for (and being paid weekly) was sold to another company. The new company decided to pay us bi-weekly. Same thing happened. A LOT more was taken out in taxes than if I was being paid weekly.
Bottom line is, the tax people look at the money you have NOW and the tax rate is based on that, not on what you "might" make or not make for the year.
Sort of true, in a really misleading way.
If your earnings vary from one pay period to the next, your tax rate will fluctuate as well. Most people see this if they get OT or a bonus. Their income based on tax tables goes up because it looks like you are earning more.
Let's say you get paid weekly and typically earn $1000/week, and one week you get a $1000 bonus. Your taxes for that $2000 week are going to seem incredibly highs, because you are being taxed as if you are earning $104,000 a year. In essence, you are having too much withheld because of the fluctuation. At the end of the year, when you file your taxes on $53000 of income ($52000 in salary plus $1000 bonus) you will get a refund for the anomalous week.
WRONG..... your taxes are based upon the income of the pay period, not what your yearly salary is. How would the IRS or state tax authority know what your yearly salary is?!??!? How would they know you're not just an independent contractor who did work for them and is getting paid?
You withholdings are based upon your income in that pay period, which would be the month. YES, the tax withholding rate will be more than if you were getting paid bi-weekly and more than if you were getting paid weekly. How do I know? Here's my story:
I learned the hard way years ago when I worked for a company that decided to cheap out and pay us monthly rather than bi-weekly (to save on the amount they would be paying the payroll company). When I got my paycheck, I couldn't believe the amount of taxes taken out --- I think it was like a week's salary. Another time, a company I was working for (and being paid weekly) was sold to another company. The new company decided to pay us bi-weekly. Same thing happened. A LOT more was taken out in taxes than if I was being paid weekly.
Bottom line is, the tax people look at the money you have NOW and the tax rate is based on that, not on what you "might" make or not make for the year.
You're only partially correct. I simplified the answer. The calculation is based on the current pay period, but the program has to put you into a tax bracket so it uses what you've already earned and what it anticipates you will earn for the remainder of the year. Then it makes the calculation based on the number of pay periods in the year.
If your withholding was so different based on frequency of pay then something was entered incorrectly. In the systems I've worked with you enter the pay period so the system knows what tax bracket you belong in. If you mistakenly enter a person that was going to be paid monthly as bi-weekly the system thinks you're going to make twice as much and puts you in a higher tax bracket. Are you sure the employer trying to save a few bucks by going from bi-weekly to monthly actually changed the pay period in the system?
I am also assuming you realize that if you get paid bi-monthly and switch to monthly, then you'll get 2X gross and your withholding should also be 2X.
The payroll taxes taken out are at the same rate regardless of pay periods.
If you only get 2 pay periods per month, the taxes taken out should effectively be double those of a single weekly pay check at 4 per month. There are extra pay periods between the two.
It will JUST LOOK like a HUGE amount of taxes taken out a monthly check over a weekly or bi-weekly pay period.
If you look a this on page one, this chart from the IRS: https://www.cccoe.k12.ca.us/biz/pdfs...ithholding.pdf
it will show that a hypothetical single person will have $75 taken out of weekly check, or $150 out of bi-weekly check. The $150 out of bi-weekly APPEARS to be high! Bit in reality is only the doubled amount of single week taxes. If you multiply the single weekly rte of $75 by 4.333 {the number of weeks in a month} you will get a number rounded to $325, as noted on the given chart.
The dastardly thing about MONTHLY pay is you have to work though a longer period to get you check/money to come in! Talk about a budget nightmare!!
It's all relative!
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"Math is hard"
