I’ve heard people warn about how much overtime you work because you could end up being put in the next tax bracket, and wind up making less than you would working less overtime. Is that true?
Generally, if you work overtime and are not an exempt employee, you are eligible for a “time and a half” premium.
You have not stated your specific tax bracket for just your full-time salary. Normally, moving from one tax bracket to the next solely based on overtime would indicate significant overtime.
What I think you should focus on is the fact that whatever tax rate is applied to your earnings, including overtime, is a percentage of your total income received. If your income is effectively taxed at 20 percent, you keep 80 percent.
Furthermore, most taxpayers will experience a decrease in taxes based on lower 2018 tax rates. Of course, you will pay a higher dollar amount of taxes if you make more money (20 percent of 50,000 is more than 20 percent of 40,000), but your tax bracket may not increase.
Without specific details about your current tax bracket, I cannot answer your question in more detail. But here are some generalities to keep in mind:
- When you make more income, the dollar amount of tax you pay does increase.
- Usually, it’s not enough of an increase to wipe to out the increase in income you receive, especially with overtime.
- Your tax rate will probably change in 2018 because of new tax laws, regardless of overtime.
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Answered by: Sean J. Brennan, CPA, is president of Brennan and Company CPA PC in Philadelphia.