Difference between weekly and biweekly paychecks

Question

Preface: all the numbers provided are fictional, but refer to the real situation

I started recently with the new job, where accounting manager indicated that checks are biweekly. As I started at the end of the month, I got my first paycheck only for the first week of work, which equals ($5 (per hour) * 40 (actual working hours)) * 0.24 (total tax deduction) = $152. When I received next biweekly check it only was $284 instead of expected $302. Once calculated I came up with being deducted not my usual 24% tax deduction, but 29%. So I'm little confused here:

1. Should the tax deduction amount be fixed regardless of the payment frequency?
2. Should I be asking my accounting manager to switch me to a weekly pay basis (where apparently I'll be making more money each month)?

Answer 1

Many payroll systems calculate tax withholding based on the period (in isolation), as if what you earned that period is what you will earn every period for the year. They basically say, this period's income x number of periods in year puts you in this tax bracket, so we'll withhold based on that.

So working a partial period will mean they might withhold at a lower rate. They under-withheld your first check, you wouldn't get more money by getting paid weekly.

Ostensibly if paid weekly you could be earning a small amount of interest that would put you slightly ahead of less frequent pay periods, but from an income and tax perspective, pay frequency has no impact.

Answer 2

Keep in mind that tax withholdings will be reconciled when you file, so if you "get more" today, that may results in a larger tax bill when you file, and vice-versa. Your total tax paid for the year will be calculated based on your gross pay, so how much is withheld only determines the amount of your tax bill (or refund) when you file.

That said, withholdings are determined based on the amount of taxable income and the length of the pay period, extrapolated out to a full year. I'm a bit surprised that the tax is not exactly double what is was for the weekly period. Spot-checking the withholding tables, the withholding amounts for bi-weekly pay are exactly double the equivalent weekly pay.

I would check with your payroll/accounting department to make sure nothing else has changed (status, exemptions, etc.) but if the pay is exactly the same then the tax should be the same (per week) as well.

Should the tax deduction [percentage] be fixed regardless of the payment frequency?

If your income is not exactly double what is was for the weekly paycheck, then the percentage could very well be different since the additional tax for more pay will be at a higher rate than the average due to the graduated tax brackets (e.g. you are not taxed at all on the first X dollars (depending on status and dependents), the next X dollars are taxed at 15%, the next X dollars taxed at 25%, etc.). So the percentage withheld will NOT be constant if the gross pay (or any deductions) are not constant.

Answer 3

I suspect the answer is very simple -- the accounting system didn't bother to compute tax withholding for the first paycheck based on one week of work -- it computed based on two weeks of work. That is, it assume that every paycheck for the rest of the year would match the first paycheck... and looking forward it decided 24% was right. Then, next paycheck, when it saw your pay double, it recalculated and decided 29% was right.