Does the government take more money in taxes for OT than straight time or is it just the gross amount?

Question

I worked 78 hours in one week. 38 hours were time and a half. My government deductions were 27% of my pay versus 17% when I work straight time 40 hours. I understand that FICA and MEDICARE are a flat 6.2% and 1.45%, respectively. I understand my taxed amount per year to be based on my AGI and that what is taken from my paycheck is an estimate of 1/52nd of that year (52 weeks; I'm paid weekly). Many of my friends say that working many hours of OT is not worth it because the goverment takes more. The government is taking more according to my paychecks...from 10.9% with 16.25 OT hrs to 14.3% for 38 OT hrs. It seems like there is less tax incentive to make more especially if you have few itemized deductions as a result of no investments or property. I made 29% more take home pay so more time is more $, obviously. Let's say Chris made $1000 gross in straight time and ot and Mike made $1000 gross in straight time. Question rephrased: Do they pay the same amount in taxes?

Answer 1

You may wind up in a higher tax bracket if you regularly work a lot of overtime, however you will ALWAYS be $$$ ahead in the end as long as the tax rate is below 100%. Given that the maximum tax rate is 35% you will always be money ahead.

Most employers withhold taxes on any individual paycheck as if you earned the same amount every pay period. With 38 hours of overtime that will result in a higher percentage in tax withholding than if the employer annualized your income and withholdings. Few employers do that, though I've worked for a couple that did.

At any rate, it will all even out at tax time next year when you file your tax return. Your tax liability is based upon your total income and all wages are lumped in together whether straight time or overtime.

Answer 2

It is based on the gross amount of the check. As the total goes up, sometimes we see the percentage of taxes go up. It has nothing to do with the breakdown of straight time, overtime, or double time. It is simply the higher dollar amount of the check.

Our payroll department has to be very careful when adding retro payments or adjustments for previous weeks. If it is a large amount, we will manually control the taxes rather than letting the percentage slide up. If an employee simply worked a lot of hours one week, then it is paid on the amount of the check.

Here is a link to the IRS publication that shows the federal withholding tables. This can give you an idea of how the fed taxes are calculated.
http://www.irs.gov/pub/irs-pdf/p15.pdf

To answer your last part: assuming everything else is equal, Chris and Mike would have the same amount withheld from a $1000 check, regardless of the type of hours worked.

Answer 3

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RE:
Does the government take more money in taxes for OT than straight time or is it just the gross amount?
I worked 78 hours in one week. 38 hours were time and a half. My government deductions were 27% of my pay versus 17% when I work straight time 40 hours. I understand that FICA and MEDICARE are a flat 6.2% and 1.45%, respectively. I understand my taxed amount per year to be based on my AGI and...

Answer 4

Each paycheck, taxes are withheld as if you make that much every pay period all year, so if you have a very large check (like because of a lot of overtime) the withholding could be a higher percent because it will look like you'd be in a higher bracket for the year.

At the end of the year, straight time and overtime are shown together on your W-2 and are taxed at the same rate when you file your tax return. If you paid in more than you actually owe, the extra will be refunded to you.

Answer 5

Your friends are right. The more OT you make, the more taxes are taken out. Example: I made 29.25 hours of overtime last pay period and this was time and a half, my federal taxes increased about $20 from the time before when I only made 17.25 hours of overtime. So I have noticed that every twelve hours of overtime taxes increase an average of about $15

Answer 6

Yes, they would pay the same amount (assuming everything else being equal). Taxes are withheld based on the gross amount of your pay. Accounting packages will typically deduct income taxes based on how you filled out your W-4 and how much you get paid (gross), so if you get paid a larger amount for one pay period, it will project out gross earnings for the year and deduct based on that.