How to Calculate the Taxes on Overtime

Although you earn more money working overtime, you will also owe more taxes.

Although you earn more money working overtime, you will also owe more taxes.

Your employer is required by law to pay 1.5 times your hourly rate for any time you work over 40 hours in a workweek. Although you'll receive an hourly bonus for working overtime, you must pay taxes on these wages, which will generally exceed the amount you have withheld from a normal paycheck. The Internal Revenue Service taxes your income by a percentage; the more income you earn, the more income tax you'll owe.

Obtain Circular E from the IRS website. This booklet is used by your employer to calculate your income tax withholdings, which include federal, Social Security and Medicare taxes.

Calculate your weekly gross pay by multiplying your normal hourly rate by the initial 40 hours you worked to determine your regular pay and multiplying your overtime hours by 1.5 times your hourly rate. Add your regular pay to your overtime pay to determine your weekly gross pay. For example, if you earn $30 an hour and worked 50 hours in a single week, your regular pay is $1,200, or $30 multiplied by 40. Your overtime pay is $300 or $30 multiplied by 10. Your total weekly gross pay is $1,500, or $1,200 plus $300.

Multiply your weekly gross pay by the Social Security tax rate, which is 6.2 percent, as of 2012. Using the previous example, your Social Security tax is $93, or $1,500 multiplied by 6.2 percent.

Multiply your weekly gross pay by the Medicare tax rate, 1.45 percent. If your weekly gross pay is $1,500, your Medicare tax is $21.75, or $1,500 multiplied by 1.45 percent.

Subtract your allowances from your income to determine your taxable income. Allowances are a nontaxable part of your income. If you don't know how many allowances or the marital status you claimed on Form W-4, ask your employer's human resource department. As of 2012, the withholding allowance for each allowance claimed on Form W-4 is $73.08 for employees paid weekly and $146.15 for those paid biweekly. Using the previous example, if you claim two allowances and are paid weekly, your withholding allowance is $146.16, or $78.08 multiplied by 2. Your taxable income is $1,353.84, or $1,500 minus $146.16.

Use the "Percentage Method Table" in Circular E to determine your income tax. You must match your payroll period and filing status with the appropriate table. Continuing the example, if you are single, claim two allowances, are paid weekly and have taxable income of $1,353.84, your income falls within the "$93.60 plus 25 percent of anything over $721 tax bracket." To calculate this amount, subtract the $721 from your taxable income, which is $632.84, or $1,353.84 minus 721. Multiply this amount by 25 percent, which is $158.21, or $632.84 multiplied by 12 percent. Add $158.21 to $93.62, which shows your federal income tax is $251.83.

Add your Social Security, Medicare and federal income tax together to determine your total tax. With weekly wages of $1,500, your total tax is $366.58, or $93 plus $21.75 plus $251.83. Your take-home pay will be $1,133.42, or $1,500 minus $251.83.

 

About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.

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