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How to calculate your overtime tax

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Last editedJul 20222 min read

If you have salaried employees who may be required to work extended hours, it’s important that you understand how this impacts your tax obligations, as well as your ability to stay on top of financial payments. Similarly, if you work outside your normal hours, you need to know how much you’ll be taxed on any extra income, so you know how much you’ll actually take home. An overtime tax calculator can help you work this out quickly and easily, but you can also work out your own tax with a fairly straightforward calculation.

Does overtime get taxed?

So, does overtime get taxed? The simple answer is yes – overtime does get taxed. In fact, overtime is taxed as the same rate as ordinary pay. However, this can be slightly more complicated where your overtime isn’t paid at the same rate as your ordinary hours.

Overtime tax calculator

Using an internet overtime tax calculator can make calculating tax easy, but you can also work out the number for yourself. The simplest way to work out how much you’ll be taxed is to add your overtime pay to your gross pay and work out your overall tax amount.

Remember that there are different tax bands based on your total income, so you may find that your overtime pushes you into the next band. In these instances, you’ll only be taxed the higher percentage on the proportion of your income that goes over the threshold, so you’ll still take home more than you would if you didn’t work the hours. However, depending on the amount you’ll be taxed, you may decide that overtime hours aren’t worth it, or you may want to cut down on the amount that you do.

Why is overtime taxed?

Overtime is taxed because it is classified as a type of income. This may seem unfair, particularly if you’re working overtime to try and meet a deficit and are finding your efforts hindered by tax payments, but it prevents businesses from placing employees on small salaries and simply making up the difference in excessive overtime pay.

Do you have to declare overtime for tax credits?

Your tax credits take into account your total amount of earnings, so you will need to include any overtime pay. Similarly, if you’re self-employed, you should include the income for all the hours that you spend working on your business, whether you consider them overtime or ordinary working hours. You don’t have to include unpaid breaks in your tax credit calculations, as there’s no actual income associated with these.

How much overtime is too much overtime for taxes?

All overtime counts towards your total income amount, so there’s no magic number to aim for if you want to avoid being hit with overtime tax. Your taxes are worked out based on your full pay, so you need to add together your ordinary income with any overtime income in order to reach your own calculation.

It’s worth paying attention to different tax brackets to see if working too many overtime hours might push you into the next bracket and cause you to pay a higher percentage than is preferable on those extra hours. Similarly, you should factor any overtime earnings into your submissions for benefits, because this can impact your overall income.

How much do you get taxed on overtime in the UK?

Again, because overtime is treated the same as ordinary pay, the amount of tax you’ll pay will depend on how much you earn. There’s no special allowance for overtime hours; it will be worked out at the end of the accounting period and subject to the ordinary tax rules.

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