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Is Overtime Taxed More? Everything You Need to Know


One popular question with most employees about earning overtime is, “Is overtime taxed more?” This question arises because after a month of working extra hours, it may not be reflected in the expected increase. One can know what to expect at the take-home pay while planning a budget after working overtime by understanding how overtime is taxed.

What Is Overtime and How Is It Taxed?

Overtime pay is the amount one gets for working over the normal hours required for full-time status, which usually means above 40 hours per week. Federal law generally requires that overtime be paid at 1.5 times the normal pay rate. On the other hand, what surprises many is the seemingly small overtime paycheck when getting to taxes.

Despite what most people believe, the question “Does overtime get taxed more?” is really very simple. Overtime is taxed at the same rate as your regular income. Sometimes, what creates the confusion is the way tax withholdings are calculated on your paycheck. Because the system is trying to assume your earnings for that pay period are representing your regular income rate, it might withhold the taxes at a higher bracket, assuming your annual income has increased accordingly.

Time is Money

Deciphering the Overtime Tax Rate

In fact, there is actually no separate “overtime tax rate,” because all income, including from the overtime rate of pay, is subject to the same brackets for your annual earnings. The higher earnings from your overtime could therefore place you, temporarily, in a higher tax bracket than your usual one, and it will appear like more has been withheld from your check.

This goes along with the previous fact; the reason why more tax is collected from more income is the progressive tax system in which the tax rate is increased as income rises. While the answer to “Does overtime get taxed more?” in the strictest sense is no, the amount of tax withheld from your overtime pay may well be increased, impacting on the amount of net pay you receive.

How to calculate Overtime tax

You’ll just have to factor in your overtime to add on to your current bracket income tax. If the sum of your regular pay and your pay for overtime in a pay period carries you into the next tax bracket, the excess will be taxed at that higher rate. This only affects the withholding and not the actual tax liability at the end of the year.

As an example: if you normally fall within the 22% tax bracket, then, working overtime, your earnings should have you step up into the 24% bracket for that pay period. Only that portion of your income, in the 24% bracket, is taxed at that rate, and only for that period.

Tips to Manage your Earnings on Overtime

Adjust Your Withholding. If you typically work overtime and significant taxes are withheld from your salary or wages, it would make sense for you to modify your W-4 form to better match your withholdings with your eventual tax bill.

Budget Wisely: Since your overtime pay may have more taken out for taxes, budget your money off of the net pay amount rather than the gross amount.

Talk to a Tax Professional: If you are not sure how to deal with taxes on overtime pay, speaking with a tax professional can give you advice that is tailored to your situation.

See Also: How to Protect Yourself in a Toxic Work Environment


Taxed more when you earn overtime? No, but the withholding may make it feel that way. The more one knows how overtime impacts one’s taxes, the more he or she can be put in control of his or her income and withholding situation. That means it’s not about how much you make but rather how you manage what you bring home. As such, careful planning and maybe some changes in your withholdings can make sure that all those extra hours pay off in both money and personal life.

Understanding your pay structure and the taxes that are supposed to be deducted can relieve you of unnecessary concerns and prepare you for the making of a budget, making sure your extra efforts are well compensated on payday.

Alma Reed is an author and researcher dedicated to enhancing productivity. She is deeply interested in areas such as time management, increasing productivity, and fostering healthy routines. Through her writing, she aims to assist people in boosting their job performance and attaining an ideal balance between work and life.

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