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How Is Overtime Taxed

Harvest is a time tracking and invoicing tool that helps teams and freelancers manage their work efficiently, including overtime hours. Simplify your workflow with Harvest's easy-to-use features.

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What will your overtime pay be?

Calculate regular and overtime earnings based on your hours and rate. Supports standard time-and-a-half and double-time multipliers.

$
Standard is 40 hours/week (FLSA threshold)
1.5x
1.5x = time and a half (most common). 2x = double time (CA after 12h, holidays).
Some states require 2x pay after 12 hours/day or on 7th consecutive day.
Total gross pay $0
Regular pay $0
Overtime pay (1.5x) $0
Double-time pay (2x) $0
Effective hourly rate $0

Track overtime hours with Harvest

Walk through the entire flow below. Start a timer, check your reports, and create a real invoice — all in three clicks.

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One click and you're timing. Try it right here: start a timer, add an entry, edit the details. This is exactly how it feels in Harvest.

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Acme Corp
Website Redesign
Homepage layout revisions
1:24:09
Content Strategy
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1:30:00
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0:45:00
Brand Guidelines
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2:15:00
Logo Concepts
Initial sketches round 1
1:00:00
Today's total 6:54:09

Understanding How Overtime Is Taxed

Overtime pay is taxed as ordinary income, meaning it is subject to the same tax brackets as regular wages. However, the additional income from overtime can push you into a higher income tax bracket, increasing the rate at which your earnings are taxed. For example, in the United States, overtime pay is subject to federal income tax, state income tax, Social Security (6.2% on wages up to $176,100), and Medicare taxes (1.45% on all wages). This can result in higher payroll deductions during periods when overtime is worked.

In the United Kingdom, overtime is included in the Pay As You Earn (PAYE) system and is subject to income tax and National Insurance Contributions (NICs). The tax rate can vary from 20% to 45% depending on your total taxable income, which includes overtime. Similarly, in Canada and Australia, overtime is taxed as ordinary income with standard deductions applicable.

Country-Specific Tax Rules for Overtime

Different countries have specific rules for how overtime is taxed. In the United States, a temporary federal deduction allows individuals to deduct up to $12,500 of qualified overtime compensation from their federal taxable income between 2025 and 2028. However, this deduction phases out for higher earners, ensuring that payroll taxes like FICA still apply to all overtime pay.

In Canada, overtime pay is subject to federal and provincial taxes, as well as Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums. However, for businesses, GST or HST is applicable to the total amount billed, including overtime, if annual taxable sales exceed $30,000. Meanwhile, in Germany, overtime is taxed as regular salary, but bonuses for night, Sunday, and public holiday work may have tax exemptions.

Invoicing and Billing Considerations for Overtime

When invoicing clients for services that include overtime, it's crucial to understand how taxes apply to the entire service charge. In the US, the Fair Labor Standards Act (FLSA) governs federal overtime pay, and sales tax on services can vary by state. If the service is taxable, the entire billed amount, including overtime, is subject to sales tax.

In the UK, VAT applies to the total value of services rendered, including any overtime, at the standard rate of 20%. Similarly, in Canada, GST or HST is levied on the total amount billed for contract services, including overtime. These taxes must be clearly itemized on invoices, alongside the service description and registration number, ensuring compliance with tax regulations.

How Is Overtime Taxed with Harvest

See how Harvest helps track overtime hours and manage invoicing seamlessly, ensuring compliance with tax regulations.

Screenshot of Harvest showing time tracking and invoicing

How Is Overtime Taxed FAQs

  • Overtime pay in the US is taxed as ordinary income, subject to federal income tax, state income tax, Social Security, and Medicare taxes. The additional income from overtime may push you into a higher tax bracket, increasing your marginal tax rate.

  • A temporary federal deduction allows individuals to deduct up to $12,500 of qualified overtime pay from their taxable income from 2025 to 2028. However, this deduction phases out for higher earners, and payroll taxes still apply.

  • In the UK, overtime is taxed as ordinary employment income under the Pay As You Earn (PAYE) system. It is subject to income tax and National Insurance Contributions, with rates ranging from 20% to 45% depending on total income.

  • In Germany, general overtime is taxed as part of regular salary. However, bonuses for night work (25% tax-free), Sunday work (50% tax-free), and public holiday work (125% tax-free) may be exempt from taxation.

  • Harvest focuses on time tracking and invoicing, leaving tax calculations to specialized payroll tools. It helps manage work hours, including overtime, to streamline invoicing and ensure accurate billing.

  • In Canada, businesses must include GST or HST on invoices for services that include overtime if annual taxable sales exceed $30,000. The total billed amount, including overtime, is subject to these taxes, which must be clearly itemized.

  • NICs, or National Insurance Contributions, are payments made to qualify for certain state benefits in the UK. Overtime pay is subject to NICs, with employers contributing 13.8% on earnings above the Secondary Threshold.