Overtime, and the myth about how it is taxed

The basic rule

Under the federal rule cited below, covered non-exempt employees generally receive at least one and a half times their regular rate for hours worked beyond 40 in a workweek. A workweek is a fixed, recurring 168-hour period; changes intended to evade overtime requirements are generally not permitted, while other changes can depend on the applicable law and facts.

Forty is a weekly threshold, not a daily one under federal law. Some states go further and require daily overtime after eight hours, and a few require double time beyond a longer day, so your state rules can be more generous than the federal floor.

The regular rate is not always your hourly rate

The regular rate may include certain non-discretionary bonuses, shift differentials and commissions, subject to statutory exclusions. That can make an overtime rate differ from one and a half times the base hourly figure.

Overtime and tax

Overtime wages are generally subject to the same federal income-tax rules as other wages, although a larger payroll period can produce more withholding because of the method used. Any over-withholding is credited against annual tax liability; whether that creates a refund depends on the full return.

For federal marginal income tax alone, moving into a higher bracket does not apply that higher rate to all earlier income. Credits, benefits, state rules and other circumstances can still affect the overall result.

Where this comes from

• 29 CFR 778.107, the general overtime rule (opens in a new tab)
• 29 CFR 778.109, the regular rate an hour (opens in a new tab)
• 29 CFR 778.105, the workweek as the unit of overtime (opens in a new tab)