Quick question about getting paid for overtime - separate check?

[Minnesota!]

Hi - I have been working on a large project at work that has required a decent amount of OT. This week I have done over 20 OT hours. So, now I have the option of getting paid for my OT in a separate check vs just rolled into my usual paycheck.

What are the pros/cons to this? I am not sure what the correct choice is and if I stand to lose more money to taxes and the like with one of the options?

I will be hitting 20+ OT hours from here on out thru January, so figured I better figure it out ASAP!

Thanks!

 

[bellarella]

Unless your employer is doing something illegal, there should be no difference. There may be a difference in the timing of the checks, and some people might like to put overtime pay into a different account. Otherwise I don't know why they offer the option.

 

[Malibustyle23]

Unless your employer is doing something illegal, there should be no difference. There may be a difference in the timing of the checks, and some people might like to put overtime pay into a different account. Otherwise I don't know why they offer the option.

I don't think that's true is it? It seems to me when my husband gets to a certain overtime amount his wages are taxed more than they regularly are. Maybe it's just my perception but are payroll wages in a higher tax bracket dependent upon the amount of the check? If so I'd personally choose the seperate? Sorry I don't officially know just what seems to happen for us.

 

[Nette]

There is a tax implication actually. If you get it rolled into your regular paycheck the taxes that come out of that check will be taxed as if that is the amount you always get paid, and thus might be in a higher tax bracket. You would get that money back at tax time, but if you want it now, you'd be better off taking the separate checks.

This used to happen during bonus time at a past employer, they would dump your bonus into your regular paycheck, and the taxes would end up being out of this world for that check.

 

[sunsprinkle24]

My DH always gets his in a separate check. He says it saves on the taxes.

 

[mamacatnv]

The tax tables assume that the OT is the weekly wage and adjusts itself accordingly based on your W-4 withholding status as if that OT is the new permanent wage and will calculate to the new annual wage therefore it adjusts the table up to accomodate the increased wage.

If the OT is permanent I would be careful about separating it out because it will withhold thinking its less of an annual wage instead of in addition to.

 

[mamacatnv]

There is a tax implication actually. If you get it rolled into your regular paycheck the taxes that come out of that check will be taxed as if that is the amount you always get paid, and thus might be in a higher tax bracket. You would get that money back at tax time, but if you want it now, you'd be better off taking the separate checks.

This used to happen during bonus time at a past employer, they would dump your bonus into your regular paycheck, and the taxes would end up being out of this world for that check.

Bonus's are supposed to be withheld at a higher rate because it is considered supplemental wages. Its something around 25-28% I believe.

 

[msmayor]

Realize that the OT is NOT 'taxed' any differently than regular wages once your return is filed.

Its only the withholding that is different...the ultimate tax on the amount will be the same whether it is paid in one check with regular earnings or as a separate 'bonus' type check.

Standard withholding rates on a 'bonus' type payment are around 20%, along with social security, medicare and any required state taxes.

 

[Nette]

Realize that the OT is NOT 'taxed' any differently than regular wages once your return is filed.

Its only the withholding that is different...the ultimate tax on the amount will be the same whether it is paid in one check with regular earnings or as a separate 'bonus' type check.

Standard withholding rates on a 'bonus' type payment are around 20%, along with social security, medicare and any required state taxes.

Ah... well I never noticed the "higher" tax rate on the bonus since my regular paycheck is at least in the 20% bracket.

 

[Minnesota!]

There is a tax implication actually. If you get it rolled into your regular paycheck the taxes that come out of that check will be taxed as if that is the amount you always get paid, and thus might be in a higher tax bracket. You would get that money back at tax time, but if you want it now, you'd be better off taking the separate checks.

This used to happen during bonus time at a past employer, they would dump your bonus into your regular paycheck, and the taxes would end up being out of this world for that check.

The tax tables assume that the OT is the weekly wage and adjusts itself accordingly based on your W-4 withholding status as if that OT is the new permanent wage and will calculate to the new annual wage therefore it adjusts the table up to accomodate the increased wage.

If the OT is permanent I would be careful about separating it out because it will withhold thinking its less of an annual wage instead of in addition to.

Thank you! Taxes ALWAYS confuse me!!!

So, maybe I would be ok to do a separate check every other pay period? That way I won't have too "little" withheld and have to play catch up at tax time, and I also won't have a ton withheld right now?

It will amount to quite a bit of money "extra" between now and January, so I want to make sure I don't get hit later on with tax implications, etc.

Thanks again!!

 

[ilovemk76]

Hi - I have been working on a large project at work that has required a decent amount of OT. This week I have done over 20 OT hours. So, now I have the option of getting paid for my OT in a separate check vs just rolled into my usual paycheck.

What are the pros/cons to this? I am not sure what the correct choice is and if I stand to lose more money to taxes and the like with one of the options?

I will be hitting 20+ OT hours from here on out thru January, so figured I better figure it out ASAP!

Thanks!

In the end it will all even out.

If you take it all in a single check, the employer will have to take out more in taxes because of the higher number used by the tax table.

If you get it in two checks, the employer will take out less tax between the two check than in one check.

On April 15, 2013, you will pay your taxes on all of your income. You will get back any overpayment you made on the single check, pay in more from underpayment on the two checks or you will come out even.

I would take two checks.

 

[DebbieB]

Bonus's are supposed to be withheld at a higher rate because it is considered supplemental wages. Its something around 25-28% I believe.

At my company, we are given the option to exclude the bonus from a 401K contribution. If you want to put the bonus towards a major purchase, it's helpful.

 

[mamacatnv]

Thank you! Taxes ALWAYS confuse me!!!

So, maybe I would be ok to do a separate check every other pay period? That way I won't have too "little" withheld and have to play catch up at tax time, and I also won't have a ton withheld right now?

It will amount to quite a bit of money "extra" between now and January, so I want to make sure I don't get hit later on with tax implications, etc.

Thanks again!!

I'd take it separately and I would then consult with my CPA (since it will be a regular thing) on whether or not I should change my withholding status so that I stay close to breaking even. I hate to owe and I don't like a huge return. I prefer a bit of a cushion so I don't worry about it.

 

[clh2]

If I had this type of windfall - I would be making sure that regardless of the option that I was being compensated (i.e. 1 check or 2) that I was having the appropriate amount of taxes withheld. I do not like surprises at tax-time. So - unless I did a very careful analysis of estimated taxes, I would be inclined to take the conservative approach and have the OT combined on the same check as regular wages. In this situation, if I wasn't willing to take the time to construct a good estimate, I would much rather have a huge refund check vs needing to pay in.

As other posters have mentioned - it won't matter at the end of the year, as your total income is the total income. This deicision is really related to current cash flow.

 

[Minnesota!]

Thanks again!

So let me just get this straight...if I would prefer to have a larger return on my taxes next year, I should do 1 check now, correct?

 

[ilovemk76]

Thanks again!

So let me just get this straight...if I would prefer to have a larger return on my taxes next year, I should do 1 check now, correct?

Correct.

 

[mamacatnv]

Thanks again!

So let me just get this straight...if I would prefer to have a larger return on my taxes next year, I should do 1 check now, correct?

In theory, that is assuming that you are having enough withheld to cover the earned income with excess.

Having it paid in one check will withhold more taxes but that is no guarantee that you will overpay and receive a refund. Based on your personal situation no matter how you handle this you could end up owing. Seek the advice of a tax planner to help or check your new estimated annual income against a tax table for basic withholding standards.

 

[tvguy]

Yes, 1 check with higher witholding could net you a larger tax refund, however, too much overtime over the year can bump your base tax rate higher.

BTW, under the tax code, employers who pay overtime in a seperate check are supposed to base the witholding rate on the total pay for the time period, not the amount of that over time check, so under the law, either option should boost the witholding rate. But a lot of employers don't know they are supposed to do that. A friend runs payroll for a small firm, and they started using payroll software that caught that, she had a lot of angry employees who wanted her to undo that, and she found out they have been breaking the law.

My wife got hammer on this because her company does not pay overtime in the pay period it was worked, but in the next pay period. Unfortunately, for her, she worked a bunch of overtime in the beginning of November, and it got put on the same paycheck as Thanksgiving week, which has Thanksgiving and the day after as double time days. So that overtime pay got lumped in with 16 extra hours of holiday pay so hundreds of dollars in overtime only bumped up her net check by about $150.

 

[Kona65]

Hi - I have been working on a large project at work that has required a decent amount of OT. This week I have done over 20 OT hours. So, now I have the option of getting paid for my OT in a separate check vs just rolled into my usual paycheck.

What are the pros/cons to this? I am not sure what the correct choice is and if I stand to lose more money to taxes and the like with one of the options?

I will be hitting 20+ OT hours from here on out thru January, so figured I better figure it out ASAP!

Thanks!

As long as everything is on the up and up, getting two separate checks won't matter.