I’m one of those few who work an ungodly amount of hours. Like 120+ per week some weeks (40 regular hours, 80+ overtime). I don’t work that every week though and in fact can always just drop down to 40 or even take weeks off with the massive amount of vacation/sick/etc time I have accrued (at the expense of my paycheck).
I’ve been regularly putting 50% of my paycheck in my 403B which cuts down my taxes tremendously. However, I needed a little extra in my bank account so I wouldn’t drop below a certain reserve point after I pay taxes. So one week I decided to drop my contributions down to 5% and as can be expected my taxes nearly tripled!
So I’m back to contributing at least 50%, but as you might expect I’m going to reach that 19.5K maximum very soon. I also have a Roth IRA, but that is after tax so that doesn’t help there. I also don’t qualify for a HSA so there goes another way to put taxes at bay.
Is there anything further I can do?
Strategy for Reducing Taxes for High Overtime Employees?
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Re: Strategy for Reducing Taxes for High Overtime Employees?
I'm not familiar with 403b specifically but I think it's like a 401k in the sense that withdrawals will be taxed as income in retirement. If that's the case, you haven't really avoided taxes, just deferred them. It's certainly more efficient than having tax drag during your career, but I think you might be a bit too hard on yourself if you treat paying taxes on your current income as throwing money away. Uncle Sam eventually gets his cut.
I'd be more concerned about accumulating vacation/sick time. I live in CA where legally, our PTO days have to be paid upon departure from the company, so there's no penalty to leaving a job with accrued vacation (is it any wonder CA companies highlight their "unlimited vacation" policies? ), but I know that's not the case everywhere, and it's common for people to accrue a bunch of it and then not be approved for long vacations so they eventually get stiffed out of compensation upon leaving the job. Obviously it sounds like you work long hours specifically for the extra pay. And am I reading correctly that your vacation time would be unpaid? Ugh, that's not nice, but I guess that's the nature of hourly. Still, I'm a big believer in taking your vacation time, because to me, even just being able to reliably return to a job and keep benefits after a vacation is technically a benefit, as people getting laid off often lose their benefits and don't have a job to return to, and it's rarely a true vacation looking for new work. If nothing else, the ability to relax and enjoy a week off is its own reward, so I would not give up that part of my compensation. But I guess that depends on how badly you want the hourly pay, which it sounds like you're busting your butt to get more of.
I'd be more concerned about accumulating vacation/sick time. I live in CA where legally, our PTO days have to be paid upon departure from the company, so there's no penalty to leaving a job with accrued vacation (is it any wonder CA companies highlight their "unlimited vacation" policies? ), but I know that's not the case everywhere, and it's common for people to accrue a bunch of it and then not be approved for long vacations so they eventually get stiffed out of compensation upon leaving the job. Obviously it sounds like you work long hours specifically for the extra pay. And am I reading correctly that your vacation time would be unpaid? Ugh, that's not nice, but I guess that's the nature of hourly. Still, I'm a big believer in taking your vacation time, because to me, even just being able to reliably return to a job and keep benefits after a vacation is technically a benefit, as people getting laid off often lose their benefits and don't have a job to return to, and it's rarely a true vacation looking for new work. If nothing else, the ability to relax and enjoy a week off is its own reward, so I would not give up that part of my compensation. But I guess that depends on how badly you want the hourly pay, which it sounds like you're busting your butt to get more of.
Re: Strategy for Reducing Taxes for High Overtime Employees?
First, a reminder that withholdings are not the same as taxes owed. Do you normally get a refund or owe taxes each year? If so, consider updating your W4.
Do you have access to a 457?
Have your read the wiki on tax efficient placement of your investments so that to you aren't nickel and diming yourself on capital gains?
Does front loading make the most of any employer matching for your 403b?
Do you have access to a 457?
Have your read the wiki on tax efficient placement of your investments so that to you aren't nickel and diming yourself on capital gains?
Does front loading make the most of any employer matching for your 403b?
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Re: Strategy for Reducing Taxes for High Overtime Employees?
Keep in mind that it's not your taxes that are skyrocketing with 120 hour time and a half weeks. It's your with holding. Maybe in a week, your income pushes you into the 32% bracket. This happens because your with holding is based on your week times 52, not what your average pay is. So one week you can be in the 32% bracket, the next 12%. When you file your tax returns, you'll get a bunch of that back. You could adjust your exemptions to reduce what's being held for taxes, but understand that this will reduce your refund.
I have the same thing happen because during certain pay periods, I get my regular pay, and two different bonuses, potentially giving me a month of pay in one week. More tax is with held. Meh. I get it back at tax filing time and I tend to get $5k in savings bonds, so want something extra with held.
I have the same thing happen because during certain pay periods, I get my regular pay, and two different bonuses, potentially giving me a month of pay in one week. More tax is with held. Meh. I get it back at tax filing time and I tend to get $5k in savings bonds, so want something extra with held.
Bogle: Smart Beta is stupid
Re: Strategy for Reducing Taxes for High Overtime Employees?
If you're charitably inclined, you can make a significant contribution to a donor advised fund, that well exceeds your standard deduction.
You can arrange your portfolio in a tax efficient manner, so at least your unearned income isn't being heavily taxed.
You can arrange your portfolio in a tax efficient manner, so at least your unearned income isn't being heavily taxed.
Steve