Can working too much overtime put you into the next tax bracket and actually cost you money?

by Sean J. Brennan, CPA | Jun 05, 2018

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.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Sean J. Brennan, CPA, is president of Brennan and Company CPA PC in Philadelphia.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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