What Is Considered Working “Overtime”?
The U.S. Department of Labor (DOL) defines working overtime and receiving overtime pay as “employees receiving pay for hours worked beyond the 40-hour work week.”
The DOL further states that overtime pay must be “at least one and one-half times” the rate of regular pay.
For example, if someone earns $30 an hour for a 40-hour work week, their employer must pay them $45 for all overtime hours they work beyond 40 hours.
The Fair Labor Standard Act (FLSA) website provides additional information about what constitutes overtime pay for taxation purposes.
Is Overtime Pay Taxed at the Same Rate as Regular Wages or More?
The IRS does not tax overtime pay and regular pay at different rates. Your total annual income, not your hourly and overtime rates, determines how much tax you pay.
That said, working overtime can move a taxpayer into a higher bracket, resulting in higher taxes or lower refunds.
Do You Pay More in Taxes When You Earn Overtime Pay?
You could owe more taxes than you typically owe at the end of the year, depending on how many overtime hours you work, your filing status, and your regular wages.
However, the IRS does not separately tax overtime pay by itself. They tax your total annual income according to your tax bracket.
Does Overtime Pay Affect Your Tax Bracket and Withholding?
Certain factors affect the potential for overtime pay to impact which tax bracket you are in. For example, if your annual income without overtime pay is $100,000, and your overtime pay increases your yearly income to exceed $103,380, you will jump from a 22% tax rate to 24%.
The IRS made numerous adjustments to tax guidelines for 2025. However, they did not change the personal exemption (which remains 0) or the no-limitation provision for itemized deductions. Both were eliminated by the Tax Cuts and Jobs Act of 2017.
Also, paid leave and holiday pay will not reduce the amount of overtime an employee is entitled to.
How Do Overtime Taxes Differ From Bonuses?
Overtime pay and regular pay are combined, and the taxes are based on that total income.
Bonuses are taxed at a flat 22% for federal income tax. On W2s, bonuses paid to an employee are included in Box 1 for “wages, tips, other compensation.”
Some companies use the aggregate method for taxing a bonus. This involves combining a bonus with regular wages in a single paycheck for tax withholding calculations.
Since the aggregate method utilizes total income to determine tax withholding, you may be subject to a higher withholding rate rather than the flat rate.
Are Any Workers Exempt from the Fair Labor Standards Act for Overtime?
Taxpayers exempt from FLSA provisions, particularly minimum wage and overtime pay requirements, include:
- Managers and other executives who supervise two or more full-time employees and are authorized to hire, fire, and change an employee’s work title or status.
- Administrative workers who perform tasks related to general business operations, management rules, and who are permitted to make independent decisions and judgements.
- High-paid workers who perform non-manual labor and earn over $107,000 annually are exempt from the FLSA.
Will the IRS Update Overtime Tax Rules in 2025?
So far, no and it is unlikely for the 2025 tax year. The W-2 and 1040 forms do not currently have line items that separate regular and overtime pay.
If changes to overtime tax rules were imposed this year, the IRS would have to force companies to record this information separately, which would make filing taxes more complicated for both employers and employees.
In November 2024, the Texas federal courts also overturned the Department of Labor’s Final Rule to increase overtime pay requirements in January 2025.
The overtime threshold will remain at $35,500 annually for “standard” employees unless new regulations are introduced. Future salary adjustments have also stopped for now.
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