Is overtime taxed more? Here’s what you need to know

Monitoring additional time for hourly staff might be one of many greatest complications for small enterprise house owners managing payroll on their very own. If you happen to’re a type of enterprise house owners, you could be questioning: Is additional time taxed extra?

It’s straightforward for the additional time hour rely to get out of hand as you handle a busy staff, particularly with out time monitoring instruments with additional time alerts to warn you earlier than it’s time to do payroll.

So, how will these additional time hours have an effect on your payroll taxes?

Right here’s the quick reply: Extra time itself isn’t taxed extra. However additional time earnings can push additional time staff into a brand new tax bracket. 

Don’t fear — we’re going to reply your questions on additional time taxes and exemptions, so you are feeling empowered sufficient to run your personal payroll with out having to show to knowledgeable. Let’s dive in to study extra about additional time pay, learn how to calculate taxes with additional time, and additional time tax exemptions.

Is additional time taxed extra?

Extra time hours — which the Department of Labor considers any hours labored exterior a full-time, 40-hour week — aren’t taxed extra. When working hourly payroll, you’ll withhold the identical taxes from an worker’s additional time wages that you’d from their common wages. 

You don’t must make two separate calculations when withholding federal, state, and FICA (Federal Insurance coverage Contributions Act, i.e. Social Safety and Medicare) taxes out of your worker’s earnings. 

An worker’s additional time earnings can push them into the following tax bracket, nonetheless, by which case the IRS and state tax a larger proportion of their gross earnings, which includes their mixed common and additional time earnings.

How is additional time taxed?

If you happen to’re running your first payroll for an worker who labored additional time, deduct taxes from the sum of their additional time and common earnings. So, in the event that they made $1,000 in common earnings and $300 in additional time earnings, you’ll add these quantities collectively and provide you with a sum of $1,300. 

On payday, right here’s what you’ll withhold from that $1,300:

Worker-paid taxes

  • Federal earnings taxes, that are based mostly on worker earnings and W-4 withholding allowances
  • FICA taxes: 6.2% for Social Safety and 1.45% for Medicare

Employer-paid taxes

  • FUTA (Federal Unemployment Tax Act) taxes: An employer pays a 6.0% tax on the primary $7,000 of worker earnings
  • SUI (State Unemployment Insurance coverage): An employer pays a tax based mostly on a state-provided price

You possibly can relaxation straightforward understanding there’s no particular additional time tax. You’ll simply withhold the required taxes from an worker’s complete earnings for that pay interval, which is common plus additional time earnings.

Sure, extra additional time work can imply withholding extra taxes, however that’s as a result of staff simply get taxed at the next price when their additional time earnings transfer them to the following tax bracket.

Extra time tax brackets

As a result of the authorized additional time price of pay is 1.5 occasions an worker’s common hourly price, staying on high of your small enterprise labor costs means keeping track of expensive additional time hours. It could possibly additionally complicate worker taxes if their additional time hours push them into the next tax bracket.

Let’s take a look at a couple of 2022 annual earnings tax brackets for single filers to see why that issues:

Taxable earnings (for the 12 months) Tax due (for the 12 months)
As much as however not over $10,275 10% of the taxable earnings
Over $10,275 however not over $41,775 $1,027.50 + 12% of the surplus over $10,275
Over $41,774 however not over $89,074 $4,807.50 + 22% of the surplus over $41,775

Right here’s the place it will get difficult: If an worker makes $800 per week in 2022, you need to withhold taxes based mostly on the second tax bracket on this chart. 

But when they work additional time hours throughout every week in July and make $1,000, that pushes them to the third bracket. Which means you’ll must withhold extra federal earnings taxes from their paycheck that week than you usually would.

How is additional time tax calculated?

Whereas there’s no particular ‘additional time tax,’ you’ll have to calculate taxes for additional time similar to you’d for normal taxes. 

Calculate your worker’s additional time tax

When running payroll, tax your worker’s additional time wages along with their common wages. Let’s check out the way you’d calculate the FITW (Federal Revenue Tax Withholdings) for an instance worker, Joaquin, who we’ll fake you pay weekly.

  1. Work out your worker’s complete taxable earnings. Joaquin makes $18 per hour and works 40 hours every week, so he made $720 in common wages.
    However Joaquin additionally labored 7 additional hours of additional time this week. So, in accordance with the Honest Labor Requirements Act, you need to pay him time-and-a-half, or 1.5 occasions his hourly wage for every additional time hour. Joaquin’s additional time price is $27 an hour, and he made ‌$189 in additional time wages. 
    Add the common pay and additional time pay collectively to determine what Joaquin’s taxable earnings is:
    $720 (common earnings) + $189 (additional time earnings) = $909 (complete taxable earnings)
  2. Decide your worker’s submitting standing. Use Joaquin’s Type W-4 to find out whether or not he has any dependents. His submitting standing is marked as ‘single,’ and he hasn’t indicated another withholdings. Which means he’ll have the utmost FITW taken from his paycheck in comparison with different staff who file collectively and/or have dependents.
  3. Use the Wage Bracket Methodology tables within the IRS’s Publication 15-T to calculate your worker’s earnings tax withholdings. Go to web page 11 for the ‘Wage Bracket Methodology Tables for Handbook Payroll Methods with Varieties W-4 from 2020 or Later.’ Use the worksheet, or just scroll right down to the Weekly Payroll Interval tables till you discover Joaquin’s wage bracket for that week. As a result of he made $909 that week, and since he has normal withholding standing as a single filer, you’ll withhold a normal deduction of $75 in earnings taxes for Joaquin.

It’s doable to do payroll taxes manually, but it surely takes time to calculate earnings tax withholdings for each worker. That’s why we advocate utilizing an automatic payroll provider software program like Homebase to keep away from tax legal responsibility and make this course of quicker, simpler, and error-free.

Are there any exemptions to the additional time tax legal guidelines?

Understanding in case your staff are exempt from additional time tax legal guidelines means determining whether or not they’re exempt from additional time pay. Based on the FLSA (Honest Labor Requirements Act), staff are exempt from additional time pay in the event that they meet these necessities:

  • You pay them on a wage foundation: You pay an worker an annual wage quite than an hourly price.
  • You pay them the federal minimal weekly requirement. As of January 2020, staff aren’t entitled to additional time pay if their employer pays them a weekly minimal wage of $684 every week.  
  • Worker duties go the duties check for exempt white-collar staff. Employers don’t must pay additional time if their staff’ job description passes the duties check for government, administrative, {and professional} staff. For instance, the FLSA outlines the primary duty of professional workers as one which includes “invention, creativeness, originality, or expertise in a acknowledged subject of creative or inventive endeavor.”

Go to Homebase’s state labor laws hub to study extra about your state’s necessities for workers who’re exempt and non-exempt from additional time pay.

How Homebase can automate your payroll taxes

As a small enterprise proprietor manually monitoring time and working your personal payroll, it’s not simply taxes that fear you about additional time — it’s payroll compliance as properly. You wish to be sure to’re doing every little thing you may to comply with your native labor tips for additional time.

Homebase’s free time clock device takes that off your plate with computerized clock-outs and alerts notifying you when staff are getting near additional time.

You can too use it to arrange break and additional time guidelines that may hold you compliant with federal, state, and native labor legal guidelines, in addition to FLSA guidelines.

Final however not least, Homebase’s HR tools and payroll features embrace an intensive library of sources, guides, templates, and automations that will help you get began so that you just don’t must turn into your personal HR knowledgeable when payday comes round.

Extra time tax FAQs

Why is additional time taxed?

Extra time is taxed as a result of the IRS nonetheless considers it a part of an worker’s earnings. Though no particular additional time tax exists, you continue to must withhold federal earnings and FICA taxes from an worker’s additional time wages.

Does additional time get taxed in a different way than common time?

Extra time doesn’t get taxed any in a different way than common wages. Extra time wages can, nonetheless, enhance an worker’s gross pay sufficient that they’ll transfer into the next tax bracket. For instance, if an worker who often earns $800 per week works sufficient additional time to earn $1,000 in a single week, you’ll must withhold extra federal earnings taxes than you often do throughout that week.

What are the tax brackets for 2022?

Beneath are the annual federal earnings tax brackets for 2022 in accordance with the IRS’s Publication 15 – T. Take into account that these tax brackets are for traditional withholding and never for workers who’ve checked the field in Step 2 of Type W – 4:


Married Submitting Collectively
At the very least— However lower than— The tentative quantity to withhold is— Plus this proportion— Of the quantity that the Adjusted Annual Wage or Cost exceeds—
$0  $13,000 $0.00  $0.00  0% $0
$13,000  $33,550  $0.00  10%  $13,000
$33,550  $96,550  $2,055.00  12%  $33,550
$96,550  $191,150  $9,615.00 22%  $96,550
$191,150  $$353,100  $30,427.00  24%  $191,150
$353,100  $444,900  $69,295.00  32%  $353,100
$444,900  $660,850  $98,671.00  35%  $444,900
$660,850  $174,253.50  37%  $660,850


Single or Married Submitting Individually
At the very least— However lower than— The tentative quantity to withhold is— Plus this proportion— Of the quantity that the Adjusted Annual Wage or Cost exceeds—
$0  $4,350  $0.00  0% $0
$4,350  $14,625  $0.00  10%  $4,350
$14,625  $46,125  $1,027.50  12%  $14,625 
$46,125  $93,425  $4,807.50  22%  $46,125
$93,425  $174,400  $15,213.50  24%  $93,425
$174,400  $220,300  $34,647.50  32%  $174,400
$220,300  $544,250  $49,335.50  35%  $220,300
$544,250  $162,718.00  37%  $544,250


Head of Family
At the very least— However lower than— The tentative quantity to withhold is— Plus this proportion— Of the quantity that the Adjusted Annual Wage or Cost exceeds—
$0  $10,800  $0.00  0%  $0
$10,800  $25,450  $0.00  10%  $10,800
$25,450 $66,700  $1,465.00  12%  $25,450
$66,700  $99,850  $6,415.00  22%  $66,700
$99,850  $180,850  $13,708.00  24%  $99,850
$180,850  $226,750  $33,148.00  32%  $180,850
$226,750  $550,700  $47,836.00  35%  $226,750
$550,700  $161,218.50  37%  $550,700


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