I'm an employee, it should also be my right to work more without the governement always taxing me extra. I want to work more, but i see no financial benefit from it for working a day in a weekend (eg. when i have a deadline), nor does my employer.
I'm not sure I understand here. Surely if you're making more money, then you should expect to pay a portion of that in tax? And you'll see a financial benefit as a result?
Let's say that a normal hour is taxed 50 %, extra hours are taxed under a different tax tabel, so more % goes to the governement. Also, if you work something more, there is a chance, you get in a higher tax zone.
So even if you work more and get more the current month. You are going to get taxed more on the end of the year.
As a result, you have earned less on the end of the year (because you get in the higher income zone, so you are taxed more).
Edit: below.
I didn't fully explained it, but it's complicated then that. If you get in a different tax bracket (didn't knew the term in English), you lose certain financial benefits.
I'd wish some Belgian accountant was here to explain it better, although i'm aware of tax brackets. They don't include some financial benefits when you have a lower income.
I'm not aware of any common tax regime that results in a marginal tax rate of over 100%, which is what you're describing there.
Even if your additional income pushes you into another tax bracket, you will only be paying additional tax on the amount made over the lower threshold. In the UK, for example, the top rate of income tax is 45%, and this is charged only on earning over ~£150,000 annually. If you earned £150,100, you would be £55 cash-in-hand better off than if you'd earned £150,000.
Unfortunately a lot of people don't understand the basic math you described. I know several people who think they lose money after getting bonuses and such.
It's not a matter of losing money; it's a matter of losing certain tax benefits that exceed the value of the bonus. It's a very real issue for people who straddle various thresholds for credits, deductions, and other benefits.
For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes.
> For example, in the US once you make over $75,000 (before most deductions), you no longer qualify for student loan interest payment deductions. For someone making $74,000 before who receives a $2000 bonus, they lose out on the deduction--potentially worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes.
The student loan interest deduction (and this is true of most -- AFAIK, actually all -- deductions with an income cap) doesn't have a sharp cutoff, it has a phaseout -- you get the full deduction up to $60,000, and it is reduced continuously with income down to zero at $75,000.
At $74,000, the maximum student loan interest deduction is a $167 deduction (which, at that income, is worth $42 in reduced tax liability.) Even with a $1,000 bonus that takes you just to the cutoff, its not possible for the loss of the deduction to be "worth significantly more in tax-adjusted terms than the gross amount of the bonus before taxes". [1]
It's unfortunate that the system for paying taxes has become so complicated. It's no wonder that people complain about rich people exploiting tax-law. Whereas they simply have the inclination/money to hire accountants that do the books properly, and give them the advice they need to keep their affairs in perfect-tax working order.
This is not how Belgian income tax works. Your pay gets divided up into tax brackets, and you pay a certain tax rate per tax bracket. You will pay a low rate for the first ~8.5k you earn, a higher rate for the next ~5k, higher still for the next ~10k and so on.
The result is that while you can be taxed more on additional income if it bumps your total income up to a certain tax bracket, you will only ever pay more money on the part that's actually above the lower limit for that bracket. This will never ever cause you to pay more taxes on the money you've already earned.
I don't think you understand how tax brackets/tax zones work.
For example, say there is no tax up to $50000, and a 50% bracket starts at $50000. If you make $50001, you only pay a 50% tax on that one dollar over 50k, the first 50k remains untaxed. This is how pretty much any tax regime in the world works.
So while you may have to pay a higher tax rate on extra overtime money earned, it would be just on that money, not on your base pay. It's impossible for you to make less money at the end of the year because you worked overtime.
I get it. You're explaining the point of a "flat tax": increased tax rates just because you're more productive (and fairly compensated for it) isn't fair. Likewise, getting unusual lump payments (overtime, bonuses) often have tax deducted at the highest rate to ensure you pay at least enough, getting the over-deducted fraction back later only when you've proven that you're not in the higher tax bracket after all (you may be in a 30% bracket, but get a bonus deducted as if you're in the 50%, getting back the over-paid 20% only after the end of the tax year, which could be upwards of a year).
Working harder, under most "progressive" tax systems, provides diminishing returns because of higher tax rates - right at the point when the personal cost of extra work grow exponentially.
> This is also a problem in the US if you manage to just cross a tax bracket.
Well, it would be, if the US adopted a tax bracket with a > 100% marginal rate. But it hasn't, so it doesn't. Though its a persistent myth, because people don't understand marginal tax rates and confuse them with total tax rates. (Or, for a similar problem, as illustrated in another subthread, don't understand the related concept of how deductions phase out before you reach the point where they are no longer available.)
I'm not sure I understand here. Surely if you're making more money, then you should expect to pay a portion of that in tax? And you'll see a financial benefit as a result?