Author Topic: Calculating worth of going back to work part time?  (Read 3307 times)

Jules13

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Calculating worth of going back to work part time?
« on: August 11, 2015, 03:47:40 PM »
I am a SAHM and might start doing some part time work.  How do I figure out what amount would bump us up into the next tax bracket?  My husband's taxable income last year was only about $10k from the 15% max limit.  Is that what I go by?

And how do I calculate when it's not even worth it for me to work part time if it's going to be eaten by taxes because we are in a higher tax bracket?  Does that make sense?

Just trying to figure out my goals in terms of going back to work, if I want to, if a PT income would just get eaten by higher taxes, etc.

Thanks.

dandarc

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Re: Calculating worth of going back to work part time?
« Reply #1 on: August 11, 2015, 03:53:11 PM »
You'll generally never have less after-tax pay by earning more, unless you're going to go over the cliff on certain tax credits.  Not enough info here to know if you are in that boat, and most tax credits have a phase-out range for exactly this reason.

What you might do is put your numbers into Taxcaster or similar, then try it with however much additional income.  Even better, get a couple paper 1040's and fill them out by hand - learn more about your taxes at the same time.

If I were you, I'd just use the 25% marginal rate + state tax + FICA in figuring what my after-tax paycheck was going to look like, then decide if that is enough to justify your effort.

Helvegen

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Re: Calculating worth of going back to work part time?
« Reply #2 on: August 11, 2015, 04:22:41 PM »
Something also to think about is reducing your general AGI by increasing your husband's 401k contribution rate. Other things you can do, assuming access, is contributing to or more to HSA/FSA, traditional IRAs, DCFSA (if you actually do need childcare for you to work), etc. I would just see what is available and possible to achieve going this route too.

I went back to work full-time, but our AGI has only barely gone up, mostly because when I started working, we ramped up contributions to different tax deferred accounts. Most of my check is gone before I get it from different pre-tax deductions.

dandarc

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Re: Calculating worth of going back to work part time?
« Reply #3 on: August 11, 2015, 08:52:38 PM »
Good point - going to work and deferring essentially all of it is a good approach too, and it mitigates the whole "taking taxes into account" thing, at least somewhat.

My wife's been getting mostly $40 paychecks this year while we front-load her 457 - took a bit for her to feel like she was contributing financially when most of her wages never touched the checking account.  Pointing to a $40K+ account balance accumulated in a little over 2 years helps with that.

Jules13

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Re: Calculating worth of going back to work part time?
« Reply #4 on: August 12, 2015, 08:49:25 AM »
Thanks for the input.  I've not heard of Taxcaster...will look at that. 

We already max out my husband's 401k and both Roths.  We contribute some to FSA for medical but would not need childcare because I would only work during school hours. 

So, I guess my only option for reducing AGI (we don't have an HSA available to us) would be to contribute to my tIRA instead of the Roth?  Is that right?  We are in the 15% bracket now, but like I said, near the top and my husband might be doing a role/job switch at work in about a month that will likely come with a pay increase.  So, we might be up very close or over into the 25% bracket.

Thx.


Thx. 

Helvegen

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Re: Calculating worth of going back to work part time?
« Reply #5 on: August 12, 2015, 09:30:21 AM »
Even if you are kicked into the 25% bracket, only the amount over the 25% will be taxed at 25%, not all the money you two have made in the year. So if you think you will be kicked over by a negligible amount, then it really isn't worth getting worked up over.

Sarnia Saver

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Re: Calculating worth of going back to work part time?
« Reply #6 on: August 12, 2015, 11:52:32 AM »
Even if you are kicked into the 25% bracket, only the amount over the 25% will be taxed at 25%, not all the money you two have made in the year. So if you think you will be kicked over by a negligible amount, then it really isn't worth getting worked up over.

Important point to understand.  Too many believe that getting a bump up in a tax bracket is a bad thing overall for them, thinking that their whole salary will be taxed at this new rate.  As stated, it is only the amount above the threshold that is taxed at new rate.  All other salary is taxed at your original, lower rate.  Getting a raise is never a bad thing, unless it raises you above a threshold for certain benefits, grants or loan forgiveness.

Jules13

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Re: Calculating worth of going back to work part time?
« Reply #7 on: August 12, 2015, 07:50:46 PM »
That IS a very important point to understand and remember!  Thanks!  I knew it, now that you point it out, but then didn't really remember, obviously.  Cheers.  That makes me feel fine about it all!