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Is Overtime Taxed More?

is overtime taxed more

Are you looking for an easy way to make some extra money

Working overtime means taking on additional hours to those set in your contract. The rate for these additional hours is usually much higher than your regular contracted hours. As a result, it may seem like a good idea to put in as many paid overtime hours as possible. However, it is important to note that you will have to pay taxes on those additional hours. 

So, let’s find out, ‘is overtime taxed more?’

The Tax On Overtime Hours

Taking on extra hours at work is a good way to save up for a rainy day. It is important to note that you will have to pay taxes on these additional hours. However, the rate you are taxed is the same as for standard work hours.

Although this may seem simple at first glance, things get a little more complicated on closer inspection. The issue is that working a large number of additional hours could push you into a higher tax bracket. This is because this tax bracket is determined by your total income before taxes and deductions.

7 Different tax brackets…

The higher your income is, the higher the tax bracket you are on will be and the more you’ll be taxed. There are seven different tax brackets for different levels of ordinary income. These brackets are designed to ensure that everyone contributes a fair amount based on their income. 

Read more: Tax Accountant Job Description

The Tax Brackets 

The lowest bracket is 10% of your ordinary income and applies to people who earn less than $10,275. People who earn over $10,775 pay 12%, while the rate rises to 22% for people who earn over $41,775. 

A person who earns more than $89,075 annually is charged 24%, which rises to 32% for an annual income above $170,050. People who earn over $215,950 are charged 35% of their income in taxes. Finally, if you are lucky enough to earn $539,900 or more, you will be expected to contribute 37%.

The Tax Brackets 

Which tax bracket are you in?

As you can see, the tax bracket you are in can make a big difference in how much you have to pay. If you are just below one tax bracket, taking on extra hours could push you over the top. This would mean that you would be charged a higher tax percentage on your income above the bracket. This is an important consideration that needs to be taken into account. 

How OT Is Calculated?

The Fair Labor Standard Act regulates overtime and sets the standard that employers have to follow. This act states that employees must receive overtime pay for any hours they work over forty per week. This rate has to be at least 1.5 times the usual pay rate, which is also known as time and a half.

This means that if you receive $10 per hour as our standard rate, your overtime rate will be $15. Of course, the higher your standard rate is, the more you can receive by working extra hours. 

Depending on your state…

In some states, you can receive extra pay for working an additional number of hours within one day. States like Alaska and Nevada set the limit to eight hours of standard pay for any particular day. If you work more, those extra hours have to be paid at time and a half.

The number of hours varies slightly from state to state. In Colorado, you need to work twelve hours within a day before you receive time and a half. In the state of California, the number of hours increases to fifteen. 

Calculating your overtime correctly

It’s important to understand that the calculation of overtime is different for salaried and hourly employees. If you are on an hourly rate, the additional hours you work are paid at a rate of at least time and a half. This makes the calculation fairly straightforward.

However, things become a little more complicated if you are a nonexempt salaried employee. You need to work out how much your weekly or monthly rate breaks down per hour. You then need to work out how many additional hours you worked during a given week. 

Calculating your overtime correctly

Overtime pyramiding

Pyramiding is when you work more than forty hours in a week and more than the set number of daily hours. When this happens, you will be paid twice for each additional hour you work. This is why it is important to find out the number of daily hours set by the state you work in. 

However, pyramiding is fairly uncommon, mainly because employers are aware of this potential perk and try to avoid it. If you regularly receive a double payout for additional hours worked, this can cause the company financial losses. It can also set a bad precedent for the company if other employees become aware of it.

How do I avoid pyramiding?

To avoid pyramiding, certain states independently calculate the weekly and daily overtime rates. This prevents employees from counting additional daily hours toward their forty-hour work week. Weekly overtime only applies to hours not gained throughout additional daily hours. 

The Pros and Cons of Chasing Overtime Pay

If you want to save up for something special, it makes sense to take on additional hours. This is a quick way to boost your salary, especially if you can take advantage of pyramiding. However, you need to consider your options carefully before volunteering to work additional hours.

The Pros and Cons of Chasing Overtime Pay

Potential advantages include:

  • Higher salary
  • Ability to pay off debts
  • Ability to complete projects
  • Appreciation from employers
  • More time to develop skills
  • Advancement opportunity
  • More time to bond with colleagues

However, it is also important to take the downside of working extra into account. Before you apply for additional hours, make sure this is the right option at the time. You need to be able to maintain a good work-life balance to remain happy and healthy.

Potential disadvantages include:

  • Missed quality time with loved ones
  • Less time for your hobbies
  • Missed meals
  • Less time to exercise
  • Reduced downtime before bed
  • Higher stress levels
  • Higher caffeine intake
  • Trouble sleeping

Deciding Between A Part-Time And Full-Time Job?

Then, you’ll want to know the difference between Part Time And Full Time Hours and take a look at 20 Part Time Jobs That Pay More Than 20 Per Hour and 15 Part Time Jobs That Pay More Than 40 Per Hour in 2023.

Next, you might be wondering about the Top Easy Jobs That Pay Well, as well as the Best Flexible Jobs That Let You Set Your Own Hours, and How Do I Convert Salary To Hourly To Calculate A Part Time Rate?

Perhaps you’ve already started applying and need to know How Much Does Home Depot PayHow Much Does Best Buy Pay, as well as How Much Does Foot Locker Pay, and How Much Does Barnes And Noble Pay, along with How Much Does Dollar General Pay, and How Much Does Aldi Pay?

Final Thoughts

If you want to earn some extra cash, taking on a few additional hours is a good option. Many companies appreciate employees who are willing to put in extra time to complete projects. In addition to padding out your paycheck, this extra time can also earn you points with your employer.

However, you need to weigh up the pros and cons before taking on these additional hours. The last thing you want is for all your extra effort to go into the pockets of the IRS. The main challenge is making sure the additional hours don’t push you into a higher tax bracket.

Good luck with earning as much as you can in your working hours!

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