Hey there! Let’s discuss what might seem boring or dull yet overly crucial thing—taxes over-time salary. Those who have worked late hours usually feel that nice sensation when they see their checks are higher than they were supposed to be. However, this is when Uncle Sam comes in to take his tax from you. Now why does tax apply to extra payments?
The Basics of Taxes on Overtime Pay
To begin with, let us disabuse you of one common misconception that overtime pay is taxed higher than your normal salary. All your earnings are treated equally by the IRS. Nevertheless, since overtime can raise your overall income level; it may push you into a higher tax bracket and therefore incur a little more taxes overall.
My Personal Story
Let’s see how my tale unfolds. This was when I held a job as a worker in a technology start-up company, a couple of years back. The team was busy deploying a freshly invented product and dedicate outrageous amount of time to working. One fine month, I can remember that it was almost sixty hours per week I endured. And then the long awaited day arrived; and this made my life because that month I received the highest salary of my life! But then, I noticed something else: a hefty chunk had been taken out for taxes.
I was confused and a bit frustrated. I mean, I worked hard for that money! So, I did some digging. Turns out, my overtime pay had pushed me into a higher tax bracket. While my regular pay was taxed at one rate, the extra income from overtime was taxed at a higher rate because it increased my total annual income.
How It Works
In case you didn’t know, here is the breakdown: for all employees who are entitled to overtime, their employers should pay at least 1.5 times their hourly wage if they work beyond forty hours per week. The additional salaries go as part of one’s general wages and ought to be taxed the same way with the other income amounts earned. A good example of such is if the employee earns $20 an hour in the normal course of work and he/she works an extra ten hours, those extra hours will be paid at $30 per hour (thus amounting to $300). This should also be included in one’s income and hence will undergo taxation similar to that on salary level.
What You Can Do
So, what are you able to do? Thus, not very much, I must admit. Taxes are something you cannot get away from in your lifetime. However, it is good to make future preparations. If you predict excessive work hours, think about modifying the number of allowances for withholding on your W-4 form. It will assist you in avoiding a large tax payment at the end of the year. Maybe Donald Trump will get an opportunity to alleviate Taxes on Overtime Pay.
Final Thoughts
For the last time, as much as it might hurt to see those taxes taken from your hard-won overtime pay, keep in mind that it is a sign of higher income. And this is always something positive. Do not worry, if you double-check on how to plan your taxes effectively, you will retain more of the additional money.
So when burnishing midnight oil just remember; by working hard not only for yourself but for the common good as well! And why not buy yourself a gift using this additional cash; after all you deserve it!
