I've heard the phrase "it's the rich gettin' richer and the poor gettin' poorer" often throughout my life, usually by old-timers discussing politics, social mobility, the decline of the middle class, things like that. Like most things people say when they're complaining about the government or "rich people", I didn't put much stock in it.
Each year since 2006 I have created a spreadsheet at work to calculate what my paycheck should be. You fill in how much you pay for insurance, whether you're filing as single or married, how many exemptions you're claiming, and your salary, and it outputs what your paycheck should be - give or take a couple pennies. To make it work correctly, I stumbled through figuring out how gross, taxable, and net income are calculated, what federal, state, and local withholdings should be, how exemptions work, how 401k and company paid benefits are calculated, what marital status really changes. Here are a couple examples to show how nuts payroll math can be:
- 401k isn't tax-free. Medicare, Social Security, and the city of Columbus all tax your 401k contributions.
- Saying you're married on your W-4 decreases federal withholding only, and only if you make more than $15,000. The state of Ohio doesn't care if you're married or not.
- Employee-paid benefits (life insurance, for example) aren't really free. They count as a raise in taxable income that is deducted back off after withholding is calculated.
Income Diff 2010-2009 $10,000 $ 113.00 $12,500 - $35,000 $ 111.75 $37,500 - $65,000 $ 126.75 $67,500 $ 97.65 $70,000 $ 68.65 $72,500 $ 43.65 $75,000 $ 18.65 $76,865 $ 0.00 $77,500 $ (6.35) $80,000 $ (31.35) $82,500 $ (56.35) $85,000 $ (64.85) $87,500 $ (14.85) $90,000 - $172,500 $ (10.85)So most single people in the "middle class" pay range will be paying either $111.75 or $126.75 more in federal taxes this year. There is some oddness in the $80,000 range, and then
$175,000 $ (80.85) $177,500 $ (205.85) $180,000 $ (330.85) $182,500 $ (455.85) $185,000 $ (580.85) $187,500 $ (705.85) $190,000 $ (830.85) $192,500 $ (955.85) $195,000 $ (1,080.85)$175,000 - $372,500 $ (25.85) $377,500+ $ (39.85)