Overtime pay and taxes

LadyFree28, BSN, LPN, RN · Nov 8, 2015

I changed my allowances to take home my overtime; I end up getting most of my overtime, and the rest ends up into retirement, so I think it's a win-win.

Eru IlÃºvatar · Nov 8, 2015

I'm wondering how many of you all lose 35-45% of your overtime pay to taxes. I'm not exactly tax savvy but I have been learning over the weeks that picking up extra shifts is actually not worth it Bc majority of your overtime pay goes to taxes. I am so angry by this tidbit!! The example I've read is:
A nurse makes 20$ an hour and is offered OT, Only after taxes OT Ends up being 18$ an hour not time and a half----another perspective? Three hours goes to taxes.
Tell me, how many of you don't even bother with overtime because of this? I know that it also depends on the state you work.
I've heard that after 2001$ biweekly taxes eat your pay.
Ugh. You can't win!

You have been misinformed. There is no magical tax rate for overtime pay, what may happen is that overtime pay makes you fall on a higher tax bracket for that period, so that is why it seems you lost a lot to taxes.

Taxes are calculated on your total annual gross income minus deductions. So because you made more money one pay period, it doesn't magically raises your taxes at the end of the year.

There is a misconception that working overtime makes you pay more in taxes, that is not true. You may end up in a higher bracket, but at the end of the year it will all balance out, most likely in your favor in the form of juicer return.

Please consult a CPA if you need to be better informed, dont go by what is said on the internet. Most people dont understand how taxation even works.

JVoEDrn · Nov 8, 2015

You have been misinformed. There is no magical tax rate for overtime pay, what may happen is that overtime pay makes you fall on a higher tax bracket for that period, so that is why it seems you lost a lot to taxes.
Taxes are calculated on your total annual gross income minus deductions. So because you made more money one pay period, it doesn't magically raises your taxes at the end of the year.
There is a misconception that working overtime makes you pay more in taxes, that is not true. You may end up in a higher bracket, but at the end of the year it will all balance out, most likely in your favor in the form of juicer return.
Please consult a CPA if you need to be better informed, dont go by what is said on the internet. Most people dont understand how taxation even works.

This is exactly my thought, I don't know enough about it and what I do read it's hard for me to decipher- it's almost a different language all together. I am most definitely going to be getting why my CPA ASAP to become better informed Bc the not knowing of it all stresses me out!!

PinayUSA · Nov 8, 2015

FICA will pay up to $118K after that then it stops coming out of your check

The more you work they more they take out

There are plenty of places online to calculate payroll per week or bi weekly to see how much will come out of your check

Jules A, MSN · Nov 9, 2015

This reminds me of hearing people say "its tax deductible" and think they get all that money back. The tax brackets below are for single filers and will give you an idea. My guess is most nurses are not going to change tax brackets unless they are working a ton of overtime and have a decent rate to begin with and even still it is only a 3% difference.

[TABLE=class: table visible-desktop, width: 100%]

[TR]

[TD]25%[/TD]

[TD]$37,451 to $90,750[/TD]

[TD][/TD]

[/TR]

[TR]

[TD]28%[/TD]

[TD]$90,751 to $189,300[/TD]

[TD][/TD]

[/TR]

[/TABLE]

Federal Income Tax Brackets for 2015 and Other Tax Years

NOADLS · Nov 9, 2015

Now that I am going for my NP, overtime isn't happening. But when I did take it, after adjusting for taxes, overtime wasn't much more than my base wage.

A lot of people who are aware of the tax implication will turn their backs to overtime and say no. But what some people don't realize is that their base wage is good with relation to the amount of work they have to do.

emmy27 · Nov 10, 2015

What you see on your paystub as "taxes" is *not* your actual tax bill, it's your "withholding"- what your employers/the IRS estimate you will owe in taxes. This is a usually a roughly accurate estimate for someone who is working their typical, base-pay amount, but when you work a lot of overtime, the calculations can be way off- they'll be calculating your potential tax burden on that fat OT check as though this was your typical income, and because OT is usually time and a half over even higher for nursing, you can easily wind up with a pay check that, if it were typical, would put you in a higher tax bracket, which can mean far more is withheld from that check than you, assuming you don't work that same OT every pay period, will actually owe at the end of the year. If that's the case, you will get a refund.

You can adjust your withholding (HR should have the form) if you work a significant amount of OT and really want the cash now (and are okay with the potential that you might misjudge and end up owing taxes come April).

Remember, being "in a higher tax bracket" only applies to the actual income in that tax bracket- if you make, say, $1K over the cutoff for the next tax bracket, only that $1K will be taxed at the higher rate. Your pay below that will be taxed at the bracket(s) in to which it falls. I mention that just because I occasionally hear people worry that working "too much" will increase their tax bracket and them trying hard to avoid that or giving up on the idea of OT altogether, as though there were some way that earning more money could actually wind up in a net loss, and under our tax structure that just isn't the case.

emmy27 · Nov 10, 2015

The numbers on this article are a few years out of date but this is a pretty straightforward explanation of what's really going on when people think OT has "eaten their paycheck:"

Where Did My Overtime and Bonus Go? | Persephone Magazine

JVoEDrn · Nov 10, 2015

What you see on your paystub as "taxes" is *not* your actual tax bill, it's your "withholding"- what your employers/the IRS estimate you will owe in taxes. This is a usually a roughly accurate estimate for someone who is working their typical, base-pay amount, but when you work a lot of overtime, the calculations can be way off- they'll be calculating your potential tax burden on that fat OT check as though this was your typical income, and because OT is usually time and a half over even higher for nursing, you can easily wind up with a pay check that, if it were typical, would put you in a higher tax bracket, which can mean far more is withheld from that check than you, assuming you don't work that same OT every pay period, will actually owe at the end of the year. If that's the case, you will get a refund.
You can adjust your withholding (HR should have the form) if you work a significant amount of OT and really want the cash now (and are okay with the potential that you might misjudge and end up owing taxes come April).
Remember, being "in a higher tax bracket" only applies to the actual income in that tax bracket- if you make, say, $1K over the cutoff for the next tax bracket, only that $1K will be taxed at the higher rate. Your pay below that will be taxed at the bracket(s) in to which it falls. I mention that just because I occasionally hear people worry that working "too much" will increase their tax bracket and them trying hard to avoid that or giving up on the idea of OT altogether, as though there were some way that earning more money could actually wind up in a net loss, and under our tax structure that just isn't the case.

This was soooooo insightful. Thank you!!!!

KelRN215, BSN, RN · Nov 10, 2015

You have been misinformed. There is no magical tax rate for overtime pay, what may happen is that overtime pay makes you fall on a higher tax bracket for that period, so that is why it seems you lost a lot to taxes.
Taxes are calculated on your total annual gross income minus deductions. So because you made more money one pay period, it doesn't magically raises your taxes at the end of the year.
There is a misconception that working overtime makes you pay more in taxes, that is not true. You may end up in a higher bracket, but at the end of the year it will all balance out, most likely in your favor in the form of juicer return.
Please consult a CPA if you need to be better informed, dont go by what is said on the internet. Most people dont understand how taxation even works.

Your employer taxes you on each paycheck as if that is how much money you will make every week though. It does happen that in the weeks that you make more, you pay significantly more in taxes. Emmy27 did an excellent job at explaining how things work.

RNKPCE · Nov 10, 2015

I'm wondering how many of you all lose 35-45% of your overtime pay to taxes. I'm not exactly tax savvy but I have been learning over the weeks that picking up extra shifts is actually not worth it Bc majority of your overtime pay goes to taxes. I am so angry by this tidbit!! The example I've read is:
A nurse makes 20$ an hour and is offered OT, Only after taxes OT Ends up being 18$ an hour not time and a half----another perspective? Three hours goes to taxes.
Tell me, how many of you don't even bother with overtime because of this? I know that it also depends on the state you work.
I've heard that after 2001$ biweekly taxes eat your pay.
Ugh. You can't win!

A lot of people I work with complain about this and I've tried to explain what EMMY27 explained very well. People who live pay check to pay check may count on most of the OT to pay bills that are due and that's why it is frustrating to them.