Overtime is extra pay for extra hours. Many workers believe overtime is taxed at a higher rate than regular pay. That is a myth, though it can look that way on a paycheck.
How overtime is calculated
Under US federal law (the Fair Labor Standards Act), most hourly employees must be paid at least 1.5 times their regular rate for hours over 40 in a workweek. Some states, such as California, also require overtime after 8 hours in a day. Exempt salaried employees are generally not eligible. Rules vary, so check with your state labor department.
Example: at $20 an hour, one overtime hour pays $30.
Why overtime looks taxed more
Federal income tax is progressive, and withholding assumes each paycheck repeats for the whole year. A big overtime week makes the system think you earn much more annually, so it withholds at a higher rate. When you file your return, the tax is figured on your actual annual income, and any over-withholding comes back as a refund. Overtime is not taxed at a special rate.
What extra hours are worth
A full-time worker at $20 an hour earns $41,600 a year before overtime. Working extra hours at time and a half adds the following (single filer in a state with no income tax):
| Overtime per week | Gross yearly pay | Take-home per year | Extra take-home | Kept per $1 of overtime |
|---|---|---|---|---|
| 0 hours | $41,600 | $35,606 | $0 | $0.00 |
| 5 hours | $49,400 | $41,873 | $6,267 | $0.80 |
| 10 hours | $57,200 | $48,140 | $12,535 | $0.80 |
| 15 hours | $65,000 | $54,408 | $18,802 | $0.80 |
Because overtime is taxed at your top bracket, you keep roughly 80 cents of every dollar at this income level before state tax.
Tips
- Check your pay stub for the overtime line (often "OT" or "1.5x").
- Do not turn down overtime because of a supposed tax jump. Earning more never makes your total take-home lower.
- Use the calculator with your total annual pay, including expected overtime, to get your yearly take-home.
For converting wages, see hourly wage to annual salary.
Try the take-home pay calculator to see your own numbers, or pick your state from the state list.