Overtime tax: Is overtime taxed or is there no tax on overtime?

Key takeaways:

• Overtime pay is compensation for employees who work more than the standard number of hours in a day or week, often at a higher rate, as required by federal and state laws.
• Overtime pay is taxed at the same rate as regular pay, with no special overtime tax rate.
• Your tax bracket is determined by your total annual income, which consists of both regular and overtime pay, and your filing status.
• There is no separate tax on overtime pay. If overtime pushes your income into a higher tax bracket, only the portion above the threshold will be taxed at a higher rate.

What is overtime pay?

Overtime pay is paid by employers to employees who work more than the standard number of hours in the day or week at a higher rate. This is enforced by federal law, as well as various state laws. 

The Fair Labor Standards Act (FLSA) is a federal labor law that requires employers to pay employees, who work more than 40 hours in a week, overtime pay at a rate of time and a half, or 150% of their typical pay rate. This means if an employee’s standard pay rate is $15 an hour, their overtime pay rate would be $22.50.

In addition to the FLSA, employers also must adhere to state wage laws, which vary from state to state. Alaska, for example, requires employers to pay employees overtime at time and a half for those who work more than 40 hours in a week or 8 hours in a day. Meanwhile, California has the same 8-hours-per-day and 40-hours-per-week law as Alaska, but also requires employers to pay double an employee’s standard pay rate if they work more than 12 hours in a day and more than 8 hours on their seventh consecutive day of work.

If you’re an employer, take some time to educate yourself on the state overtime laws where you live (and, if your employees work remotely, where they live). If you’re an employee, educate yourself on your state’s rights regarding overtime pay.

Is overtime pay taxed differently?

No, overtime pay is not taxed differently than your regular pay. While your rate of pay is higher when you get overtime, that does not mean that you’ll be taxed at a higher rate. Whether your pay rate is your standard rate or overtime pay rate, you’ll pay the same tax rate, which depends on your tax bracket. 

Is overtime taxed more? 

No, overtime pay is not taxed more than your standard pay, but there's a common misconception that it is. This misunderstanding often arises because when employees work overtime, their paycheck is larger, and they may notice more taxes being withheld. However, this doesn't mean that overtime is taxed at a higher rate.

The truth is that your overtime pay is taxed the same as your regular pay. The reason more tax might be withheld is that your total income for the pay period has increased, potentially making it look like you're being taxed more. In reality, your total income for the year determines your tax bracket, not the type of income you earn (whether regular or overtime).

If your overtime pay bumps you into a higher tax bracket, you’ll only pay the higher rate on the portion of your income that exceeds the threshold. The rest remains taxed at the lower rates.

This gradual increase in tax rates as your income rises is why it may feel like overtime is taxed more, but it’s just part of the progressive tax system used in the U.S.

Are bonuses and overtime taxed differently?

Yes, bonuses and overtime are taxed in different ways. Bonuses are typically taxed at a flat rate of 22%. Overtime pay, on the other hand, is taxed at your standard tax rate.  

How to calculate overtime tax

You calculate overtime tax the same way you calculate all your federal income tax, based on your tax bracket. No separate tax on overtime exists. Overtime pay simply gets added to your regular income, and the total is taxed according to the federal tax brackets.

Let’s say that your annual income without overtime is $42,000, which places you in the 12% tax bracket as a single filer. If your overtime pushes your annual income to $45,000, you're still in the 12% tax bracket, so your tax rate doesn’t change. However, if your overtime increases your total income to $50,000, part of your income will fall into the 22% tax bracket. In this case, only the amount over $47,150 would be taxed at the higher 22% rate, while the rest would still be taxed at 12%.

How do I know which tax bracket I am in?

Your tax bracket is determined by your filing status and income. Here are the 2024 tax brackets based on filing status.

2024 federal income tax brackets for single filers 

2024 federal income tax brackets for married couples filing jointly 

2024 federal income tax brackets for married couples filing separately 

2024 federal income tax brackets for heads of households 

Overtime pay can significantly boost your income, but it's important to understand how it’s taxed to avoid surprises at tax time. There’s no separate tax on overtime, but you may move into a higher tax bracket depending on your total earnings.

If you have questions about how overtime affects your taxes, or need assistance with your tax return, a Jackson Hewitt Tax Pro can help. Book your appointment today. We’re here all year!