How to Calculate the Taxes on Overtime

Overtime hours can make for long weeks and bigger paychecks. Before you get ready to spend the windfall, be sure to know exactly what your paycheck with overtime will be. To do this, you need to know your overtime tax rate.

TL;DR (Too Long; Didn't Read)

Your employer should tax your overtime wages at the same rate as your other hourly pay. Add up the gross total wages and calculate the taxes as normal.

Be Your Own Overtime Tax Calculator

To make a great budget and stick to it, you have to know how much you will bring home every pay period. This is easier for salaried employees who do not earn overtime pay and have consistent hours. However, if you are an hourly worker, you can learn to calculate your own take-home pay.

First, calculate your overtime rate. In most situations, this is one-and-a-half times your hourly wage. Then, determine your gross pay for the period.

To do this, you multiply your hourly wage by the number of normal hours you worked (for example, $10 an hour by 40 hours a week after taxes). Then, multiply your overtime wage by your number of overtime hours. Add these calculations together to get your gross pay.

From there, the information on your W2 will determine how much in federal taxes your employer will deduct. If you don't know your rate, you can look at previous pay stubs or use the Wage Bracket Methods Tables on the IRS website to find it.

You can then calculate how much the employer deducts for Social Security and Medicare. Employees pay 7.65 percent of their gross incomes toward these services.

If you want to double-check your work, you can use an online pay calculator. Many financial service companies have these on their websites. Just be sure the overtime tax calculator you choose is for hourly workers and includes a space for overtime hours.

Exceptions to These Rules

If you are hourly and work overtime, your calculations may not always mean you get a refund at the end of the year. For example, if you work so much overtime that it puts you into a higher tax bracket than you expected, your calculations may be slightly off.

Some states have income taxes that come out of paychecks. If your state collects income taxes, be sure to include this in your calculation as well.

Salaried employees who earn a certain amount generally do not get increased pay for overtime. If you are exempt, you can use your gross pay to calculate your take home pay the same way, but without overtime. This threshold has changed between 2017 and 2018.

Overtime in 2018

If you are a salaried employee, overtime rules can change for you depending on who wins elections. As of October 2018, salaried employees who make less than $23,660 per year must get overtime pay for anything over 40 hours per week. Although the fate of the federal threshold lies in the courts right now, several states have higher requirements.

Many states have taken steps to increase the threshold at which employees get overtime pay. For example, Maine gives this right to employees who make less than $30,000 per year, while New York has different rates for each area of the state.

Overtime in 2017

In 2016, the Obama administration implemented a rule to raise the threshold at which salaried workers get overtime to $47,476 per year. In December of that year, a federal judge halted the rule to see what then President-elect Trump would do.

In July 2017, the administration opened the rule to comments. As of October 2018, the administration is taking comments on the rule. You should be sure to look to your state regulations to see if you qualify for overtime pay.

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