When is it a good idea to ask for a pay cut

[KTP]

Would there be any income level where it might be advantageous to ask for a pay cut?

I was trying to think of as many of the freebie and incentive programs as I could and trying to figure out the phase out income limitations on them.

I know the Roth IRA starts phasing out at 166,000 and the tuition tax credit phases out at 160,000. I think there have to be some other significant tax credits I am leaving out.

I wonder if you added all of these up if it might not be a better deal to make say $150,000 a year and reap all the rewards vs making $160,000 a year and missing everything (considering you are probably only taking home $6000 of that extra $10,000.)

As they add in new subsidized programs like health insurance and possibly more tax rebates (which you miss at least part of if you are over 160,000) could this situation be a reality?

It would be too funny asking your boss, "Er, could I get a pay cut?"

[graceful]

Ummm... not sure if I would ever ask for a pay cut especially since it may become a PERMANENT cut while these incentives may only be temporary. But... perhaps you might be able to ask your employer to defer your income to the next year? It would really depend on your relationship with your employer.

[MonkeyMama]

Personally, I would never ask for a pay cut. BUT, I would work less. (Switch to part-time...)

Other people defer income to a later year. But that gets tricky. More legal/useful in some situations than others.

Though I Don't think asking for a pay cut is the right way to go about it, this is precisely why we are very happy to live on one income. Most people look at us at face value and think we gave up a $50k or so income. The truth is, with taxes and daycare (both large pieces), and the expenses of working - commute and paying more for convenience - we only gave up like $10k a year. Easily made up by very part-time work. (Daycare is a bigger factor than taxes here, but they all kind of play into some illusion that we gave up some huge income and have to live on $50k less per year).

You point out why careful tax planning is important at higher tax brackets. I had a client who made about $1k too much to qualify for a hefty education credit last year. They would have been far better off making $1k less, for that one year anyway.

In most cases, you come out ahead by making more money. More is more. But there are certain points where things like AMT and phase-outs come into play, and that logic goes out the window. If we get to that point, I will just be working less hours, myself.

[KTP]

In most cases, you come out ahead by making more money. More is more. But there are certain points where things like AMT and phase-outs come into play, and that logic goes out the window. If we get to that point, I will just be working less hours, myself.

It sure does seem a strange reward system to encourage people to want to contribute less (hours work) to receive more.

[zetta]

Unfortunately at high income levels you are often on salary and don't have the option of working less hours to fine tune your income. Part-time work is hard to come by and is sometimes penalized when you compare the rate per hour to that of a full-time salary.

[cschin4]

Is your wife going to ask for a paycut?

[KTP]

No, she makes enough more that it wouldn't really make economic sense to ask for a paycut. The question only came about because recently I have realized how many things we did not qualify for (Roth IRA, Tuition tax credit, stimulous payment, etc) and thought about the fact that if she made just a little less, it would actually pay to make even more less.

[Daylily]

No, she makes enough more that it wouldn't really make economic sense to ask for a paycut. The question only came about because recently I have realized how many things we did not qualify for (Roth IRA, Tuition tax credit, stimulous payment, etc) and thought about the fact that if she made just a little less, it would actually pay to make even more less.

So is this like the welfare trap - in the cases where a low income earner starts losing things like state-provided subsidized health care, free school lunches, food stamps, subsidized housing, etc. when the household income increases.

In your case it is more like the middle class trap.

[lovcom]

I would never ask for a paycut....it weakens one's standing.

Best to agree to a paycut if it is offered by the employer.

Don't blink. Don't show your cards...you will lose leverage.