Anyone know how the federal taxation of overtime works?

Question

Once I got a check for 3600 with 2480 take home. Then I got a check for 2000 with 1600 take home.

Anyone know how the taxable rate of overtime is figured. I have overtime for 40.5 hours. I can break this up over two pay periods if I would get taxed less.

Any help appreciated!

Answer 1

I assume you, like many others, don't like the higher withholding on the extra earnings. Withholding is calculated for each week's paycheck based on the annual income bracket that would result from that amount being your regular pay. When you get a fatter check, you're pushed into a higher bracket for that week. When you do your taxes at the end of the year, you'll be taxed at your regular rate, so the money withheld will go toward your refund.
Whether or not the money is from overtime pay is irrelevant.

Answer 2

When you file your tax return after the end of the year, overtime will be taxed exactly like straight time - it's just dollars earned.

If you have a lot of overtime in one pay period, they'll probably take out at a considerably higher rate, since the withholding tables just look at total paid that pay period and not whether it's overtime, so they'll take out like you make that much every pay period. The employer is required to take out based on what you earned in that pay period, so breaking it up isn't an option. You can always increase your exemptions on your W-4, but that's not practical if the large amount of overtime pay is just for one pay period. And you'd want to be real sure you didn't have too little taken out, and have to pay taxes and penalties with your return.

You'll get the money back when you file your return if you end up paying in too much. But if you want the money earlier and are sure you'll still have enough paid in, you might adjust your W-4. They'll still take out a lot more when you have heavy overtime, but you might come out closer in the end.

Since it's already August, it might be best if you just let it ride for this year, file as early as possible and get your refund if you have one coming. Then if you do end up with a big refund, and the overtime situation is likely to continue next year, adjust your W-4 withholding then. It's possible to calculate everything and know just where you stand if you can estimate how much more overtime you'll get this year, but can get pretty complicated.

Answer 3

You can't break it up, and it really won't matter much anyway. The employer is required to pay you within 7 days of the close of your pay period, including the overtime. When you work a lot of overtime, it raises your tax bracket for that pay period and more may be withheld than if you hadn't worked the OT. However, at the end of the year, the IRS is only concerned with the years' total pay and your adjusted gross income. That is what is taxed and determines if you paid too much or too little throughout the year due to the fluxuation of you pay.

Answer 4

You are taxed on your income, not on whether it is regular pay or overtime. The amount of tax witheld from a paycheck is based on the choices you made on your withholdings request when you started the job. Spreading your earning out won't change the amount of tax you pay, the only way to pay less is to earn less!

Sorry, not good news, huh?

The amounts you cite don't really make much sense though, you should look at the pay stub and see what the deductions were itemized as.

Answer 5

The government doesn't care if you made $10K in 10 hours, or 50 hours, you made $10K, you'll get taxed the same amount on one check, or two. In NYS however, from my personal experience, will not tax if under a certain amount. But you'd have to be flipping burgers like I was for that to be low enough to matter.