Is Overtime Taxed More? Deep Dive Into Overtime Taxes and All You Need to Know
Sadly, overtime work is a routine for lots of employees, especially when they work in industries that need to work overtime before a deadline or project completion. But one burning question that often pops up is: Is overtime taxed more? Maybe you’ve been working extra hours and are asking yourself how much of your hard-earned overtime is going to be taken out of their paycheck by taxes.
In this article, we’ll explore the ins and outs of overtime taxes, including whether it’s taxed at a higher rate, the overtime tax brackets, and how much overtime is too much. Along the way we’ll bust some common myths and shed light on whether working overtime is actually worth it after taxes.
Let’s dive in!
Is Overtime Taxed More?
The short answer: Overtime is taxed more, yes, but not the way people think. There’s no different tax rate for overtime pay than your regular wages. But in taxes, however, the more you make, the more your tax bracket can pile up and the more it looks like overtime is taxed at a higher rate.
In the US, taxes are ‘progressive’ — that is, the higher your earnings the more of your income will be taxed. If you’re pushed into a higher tax bracket due to your overtime, you’ll see more of that overtime going.
Is Overtime Taxed at a Higher Rate?
It’s neither taxed at a separate rate, nor is overtime pay itself. It’s added to your regular wages and taxed on it along with the rest of your pay. Let’s say you make $50 an hour and work 10 hours of overtime — that $500 extra does become part of your paycheck, and gets taxed based on your total income. It will be taxed at the higher rate as your overtime takes you over to a higher earnings tax bracket.
Overtime pay is not taxed a “special” or “higher” rate – however, since your overtime wages are added to your regular wages, this might equal or exceed your annual salary step, and bring you into a higher tax bracket, meaning you pay more taxes in total.
What Percentage of Overtime Is Taxed?
This is a common question, but your income and where you fall on the tax bracket spectrum will play a big role in determining whether or not this is smart for you. Overtime is generally taxed at the same rate as regular income; however, if you receive enough overtime to raise your taxable income above the upper limit of the applicable bracket, you will pay a higher percentage.
For example, suppose you earn $50,000 a year and earn $10,000 in overtime, your income total would be $60,000. If you make enough from this extra income to put you into a higher tax bracket, you may owe at the higher rate on that overtime pay. Progressive tax systems: The IRS collects revenue by the use of the progressive tax system; higher earnings (including overtime), are taxed more.
Overtime Tax Bracket
Ranges of income that are taxed at certain rates are tax brackets. For instance, in 2024, the U.S. federal tax brackets go from 10% to 37%. The higher you earn, the more tax you will pay.
Here’s how it works:
For Single Filers:
- 10% for income up to $11,000
- For income of $11,001 to $44,725, income is taxed at 12%.
- Income $44,726 – $95,375: 22%
- And so on…
Although your overtime may bump your total income into a higher tax bracket, then the overtime will be taxed at that higher rate.
What is Considered Too Much Overtime for Taxes?
I don’t know what qualifies as “too much” overtime when it comes to taxes (I guess it’s whatever taxes you think is too much), but mainly it’s based on how much overtime bumps you into another tax bracket. The thing to understand is how overtime affects your tax bracket, if this extra income is worth it to you.
For instance, let’s say you earn $40 per hour and are working on the 22% tax bracket – in this case your overtime will most likely be taxed the same amount. But if you work enough overtime to move you from 15% to 24%, then every extra dollar you earn will be taxed at a higher rate.
Overtime Tax Myth: Is Overtime Really Taxed at a Higher Rate?
One myth I hear a lot is that overtime is taxed at a “special higher rate,” but that’s not true. Overtime is taxed the same as any other income, under the same tax brackets, the IRS says. Regardless, you may find yourself fulfilling the income thresholds of a higher tax bracket, which is why overtime can feel as though it’s taxed more.
Likely, the reason people end up confused is they believe overtime should be taxed separately from their day job, but it’s just a function of total income. In short, no, overtime isn’t taxed at a different, or ‘special,’ tax rate — overtime is taxed as regular income.
At What Point Is Overtime Not Worth It?
But things start to get a little bit more nuanced. The first thing is, does overtime actually pay off for you or not? This really depends on what your personal tax situation is like, what kind of financial goals you have, and how well you can strike a work–life balance.
For example, if after working overtime, it places your income in a very high tax bracket, then you may only be taking home a very small part of your overtime pay after taxes. In some cases, you may discover you’re not getting the financial reward you were expecting after tax hits from working too many hours of overtime. Besides financial benefits, you should think about the cost to your own time and well-being.
How Much Is Too Much Overtime?
Generally, there is no limit to how much time you can work overtime. Though, the more hours you work, the more taxes are owed. You should ask yourself if squeezing in a little more overtime that makes you eligible for a higher tax bracket is worth the higher tax on the income you gain.
And it’s important not to forget the effect the amount of time at work has on your health. Long-term effects of overworking include burnout, stress, and less productivity. While overtime may seem like a great way to make some extra money for a short time, it’s also something you don’t want to do long term.
Is It Worth Working Overtime?
Working overtime can be a great way to increase your income and achieve a financial goal sooner for some people. However, it’s essential to consider how much of your overtime earnings will be taken by taxes and whether the extra hours are worth the toll they take on your health and personal life.
Also worth considering are factors such as job satisfaction and work-life balance. It’s also not often that spending extra time at work is more rewarding than spending time with your family, friends, or a hobby.
How Much a Year is $52 an Hour After Taxes?
Imagine you make 52 dollars an hour and work full-time (40 hours a week). That is roughly $108,160 annually before tax. Federal income tax should come out to about 22% to 24% of your income depending on your tax bracket. After taxes, you would take home around $81,000 to $84,000 yearly.
There is $39K a year broken down as how much an hour.
Now let’s break down $39,500 per year. The more you work, the more money you earn, however. If you’re working 40 hours a week, your hour rate will be about $19 per hour. Your after federal taxes will be about $30,000 to $32,000 per year depending on your tax bracket.
Conclusion: Is the Tax Blow on Overtime Worth It?
Ultimately, whether overtime is worth taking the tax hit is a matter of how much you want to achieve financially and what you do financially. Though overtime isn’t taxed at a special rate, you could find that it pushes your income into a higher tax bracket where you take home less.
But for a lot of people, the extra money is worth the tax burden. If you do decide to ditch your phone, just be sure that you consider the pros and cons — and your mental health, physical health, and work vs. life balance are absolutely amongst them. Finally, it is up to you to think of whether to spend overtime to work based on long-term goals.
FAQs
Is overtime taxed more than regular pay?
But overtime isn’t taxed more, it’s taxed like regular income. But overtime earnings can drive you into a higher tax bracket.
What is the overtime tax bracket?
Taking into account total earnings, there is no difference between overtime and other income, which is taxed at the same rate. If your overtime puts you over the line for getting into a higher tax bracket, you pay tax at that rate.
How do we know if we’ve worked too many overtime hours?
Although there’s no strict limit, if the overtime pushes your income into a higher tax bracket, it might not be quite as profitable as you may have thought.
Is it worth working overtime?
It all depends on what you are trying to achieve, your tax bracket, and lifestyle. Think about the financial gain versus the health and overall well-being.
How much overtime is too much for taxes?
While there’s not a set number of overtime hours, if you’ve found that it has pushed your income into a higher tax bracket, it might not be quite as profitable as you may have thought.
