General Question

sarahclif's avatar

Why do people think that you make more if you get 2 paychecks versus 1 paycheck for the same pay period?

Asked by sarahclif (130points) July 14th, 2009

Co-workers keep saying that if you get paid with 1 check for 160 hours at once versus 2 checks for 80 hours you make less. This doesn’t make sense since taxes are a percentage. Why would they be right?

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8 Answers

MrItty's avatar

Because taxes aren’t a straight percentage. There are tax levels.

If you make between X and Y, your taxes are (for example) 10%.
If you make more than Y, but less than Z, your taxes are 10% of Y, plus 15% of Z-Y.

At the end of the year, when you do your tax return, it will all balance out. But for paycheck-to-paycheck, your withholding is determined by the amount you’ve made that pay period. People who get fewer larger paychecks are more likely to have a larger withholding and therefore have less take-home pay. They will get a larger tax refund (or smaller amount due) come April, but that still means you’re spending a year without access to money that’s rightfully yours.

JLeslie's avatar

You don’t make more in the end that is ridiculous. If you are having more taxes taking out than you want, because you get one big check, change your W4.

critter1982's avatar

Well if you can earn interest on that first paycheck, you would be earning more in the long run.

bpeoples's avatar

@critter1982 That assumes you’re making interest =)

This is a notable problem with (most) paycheck services—in particular, my salary adjustments happen at mid-year, which means that I need to adjust my withholding to compensate for the first half of the year where I was being taxed at less than my total income.

Also see it when I work random odd jobs (as an employee) for people—I’ll end up with a $125 check with almost no taxes taken out, rather than the ⅓ I normally see taken out.

JLeslie's avatar

@critter1982 That’s true. Good point. That is the argument to try to owe some money in taxes at the end of the year, rather than get money back. But if you are terribe at saving it can get you into trouble.

Same if you charge everything on your credit card and pay it off on time in full, you actually SAVE money if you charge everything, because you have use of your money for a month longer than if you pay cash. This really counts when interest rates are high in the banks, which they were when I was young.

MrItty's avatar

@JLeslie charging everything and pay it all off also saves money if you have even a half-way decent credit card. I charge everything to my Southwest Visa card, and have gotten four free round trip airline tickets in the past year….

JLeslie's avatar

@MrItty That too! :)

kewlguy_exABuser's avatar

it would depend on the amount of hours you worked – if it varies it could be more, but I think the reason people think the make more is because they’re less taxes taken out since it is a lower amount!! Makes sense, huh?

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