My paycheck shrunk about 10% from last time because of withholding. Why?

May 15, 2014 2:22 AM

I originally got paid for a one week interval and 22% of my paycheck was deducted for taxes. Now, I'm getting paid in two-week intervals and 31% of my paycheck is being deducted. The money is disappearing into withholding. Why did my paycheck shrink, even though my pay rate hasn't? I have not changed my withholding allowances.

First paycheck (one-week interval):
Federal Withholding - 10.9%
CA Withholding - 2.2%
Social Security - 6.2%
CA Disability - 1%
Medicare - 1.5%

Second paycheck (two-week interval):
Federal Withholding - 16.4%
CA Withholding - 5.4%
Social Security - 6.2%
CA Disability - 1%
Medicare - 1.5%

The Federal and CA withholding amounts changed dramatically. The end result is that my take-home pay is about 15-20% lower than I expected it to be. My pay rate has not gone down and I haven't changed my allowances (single, 1 allowance).

I've asked a bookkeeper and her answer was that they take larger % amounts from larger paychecks, even if they are both paid at the same rates. Can anyone verify this? If this is true, wouldn't it be beneficial to get paid in shorter intervals?

posted by WCF to Work & Money (7 answers total)

Best answer: At least at a federal level--I've never done California payroll but I assume it's probably the same--the withholding does take into account how often you get paid. Just glancing at the tables and running a couple sample figures, I think that a 16.4% effective federal rate on a biweekly check would probably put you somewhere vaguely around a $60k annual income, not taking into account how things like retirement accounts or health insurance would effect it. Similarly, the 10.9% rate would have been appropriate for something closer to a $40k annual wage total. If your biweekly check is precisely twice what your weekly check was, then I suspect one or the other of these is closer to correct, and either the old withholding was off or the new one is.
posted by Sequence at 2:54 AM on May 15, 2014 [2 favorites]

With the caveat that it is six o'clock in the morning and I slept poorly so it is entirely possible that my math is off on this, but you get the idea, hopefully.
posted by Sequence at 2:55 AM on May 15, 2014

Were you previously getting paid on a weekly cycle on a regular basis and your employer switched you to a two-week cycle, or does "first paycheck" literally mean your first paycheck for this employer and you only logged one week of work during their regular two-week cycle?

Because if it is the later case, then understand that withholding is based on your estimated annual income, which equals paycheck amount x no. of paycycles in year (for employers who pay biweekly, that's 26). If your employer pays biweekly but your annual income is not accurately reflected by taking your paycheck amount x 26 (you have a short check because of unpaid leave, academics who work 10 months out of the year, you start a new job midyear at a significantly higher or lower salary) your withholding for graduated taxes like income tax is going to be off (but your withholding for flat taxes like FICA will be unaffected).

If you've been working at the same company and getting paid every week for a while and the withholding rates were always lower, then it seems quite plausible that your employer had been misreporting your pay cycle to the IRS as biweekly.
posted by drlith at 3:41 AM on May 15, 2014

This table may help - it shows how much should be withheld, and it breaks it out by the different pay periods and pay ranges. (try page 26)

The same thing happened to me back when I worked for a company that switched from weekly to biweekly payroll - suddenly, I was taking home less, even though my pay did not change.
posted by needlegrrl at 5:31 AM on May 15, 2014

I think the simple answer is that your employer's system is set up to calculate withholding based on bi-weekly pay periods. When you started and only worked one week in that period it calculated your wage rate as being $X per two week period, even though you had actually only worked one of those weeks. The next pay period you actually worked and were payed for both weeks, in effect, doubling your "pay rate".
posted by uncaken at 5:48 AM on May 15, 2014

Payroll taxes are calculated each paycheck as if that is how every paycheck that year will look. This is why what Sequence is saying is correct.

Your first paycheck deductions were calculated as if every two weeks you would be paid that dollar amount which would mean a relatively low annual salary and so a lower tax rate. Your second paycheck was calculated as if that is how much you will earn each pay period which means a higher annual salary and a higher tax rate.

This is also why bonuses appear to be taxed at a higher rate because if you get a $5000 bonus one pay period the deductions are calculated as if that is now your bi-weekly pay so you would need to be taxed appropriately. This is why so many companies choose to just flat tax bonuses, it is easier and less shocking.
posted by magnetsphere at 11:26 AM on May 16, 2014

I realized a while ago that my employer was withholding too much. Turns out payroll had me listed as a nonresident alien for some reason. Couldn't hurt to call hr and ask them to check. Also, do the calculation yourself based on needlegirls link and see what you think the withholding ought to be.
posted by jpdoane at 9:31 PM on May 16, 2014