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Is extra time taxed extra? Here is what you have to know

Monitoring extra time for hourly employees could be one of many greatest complications for small enterprise house owners managing payroll on their very own. For those who’re a kind of enterprise house owners, you could be questioning: Is extra time taxed extra?

It’s straightforward for the extra time hour rely to get out of hand as you handle a busy staff, particularly with out time monitoring instruments with extra time alerts to warn you earlier than it’s time to do payroll.

So, how will these extra time hours have an effect on your payroll taxes?

Right here’s the brief reply: Additional time itself isn’t taxed extra. However extra time earnings can push extra time employees into a brand new tax bracket. 

Don’t fear — we’re going to reply your questions on extra time taxes and exemptions, so you are feeling empowered sufficient to run your individual payroll with out having to show to an expert. Let’s dive in to be taught extra about extra time pay, the best way to calculate taxes with extra time, and extra time tax exemptions.

Is extra time taxed extra?

Additional time hours — which the Division of Labor considers any hours labored exterior a full-time, 40-hour week — aren’t taxed extra. When working hourly payroll, you’ll withhold the identical taxes from an worker’s extra time wages that you’d from their common wages. 

You don’t should make two separate calculations when withholding federal, state, and FICA (Federal Insurance coverage Contributions Act, i.e. Social Safety and Medicare) taxes out of your worker’s earnings. 

An worker’s extra time earnings can push them into the subsequent tax bracket, nonetheless, wherein case the IRS and state tax a better share of their gross revenue, which contains their mixed common and extra time revenue.

How is extra time taxed?

For those who’re working your first payroll for an worker who labored extra time, deduct taxes from the sum of their extra time and common earnings. So, in the event that they made $1,000 in common earnings and $300 in extra time earnings, you’ll add these quantities collectively and give you a sum of $1,300. 

On payday, right here’s what you’ll withhold from that $1,300:

Worker-paid taxes

  • Federal revenue taxes, that are primarily based on worker earnings and W-4 withholding allowances
  • FICA taxes: 6.2% for Social Safety and 1.45% for Medicare

Employer-paid taxes

  • FUTA (Federal Unemployment Tax Act) taxes: An employer pays a 6.0% tax on the primary $7,000 of worker earnings
  • SUI (State Unemployment Insurance coverage): An employer pays a tax primarily based on a state-provided price

You’ll be able to relaxation straightforward understanding there’s no particular extra time tax. You’ll simply withhold the required taxes from an worker’s whole revenue for that pay interval, which is common plus extra time earnings.

Sure, extra extra time work can imply withholding extra taxes, however that’s as a result of workers simply get taxed at a better price when their extra time earnings transfer them to the subsequent tax bracket.

Additional time tax brackets

As a result of the authorized extra time price of pay is 1.5 occasions an worker’s common hourly price, staying on high of your small enterprise labor prices means maintaining a tally of pricey extra time hours. It could possibly additionally complicate worker taxes if their extra time hours push them into a better tax bracket.

Let’s take a look at just a few 2022 annual revenue tax brackets for single filers to see why that issues:

Taxable revenue (for the yr) Tax due (for the yr)
As much as however not over $10,275 10% of the taxable revenue
Over $10,275 however not over $41,775 $1,027.50 + 12% of the surplus over $10,275
Over $41,774 however not over $89,074 $4,807.50 + 22% of the surplus over $41,775

Right here’s the place it will get tough: If an worker makes $800 per week in 2022, you must withhold taxes primarily based on the second tax bracket on this chart. 

But when they work extra time hours throughout per week in July and make $1,000, that pushes them to the third bracket. Meaning you’ll should withhold extra federal revenue taxes from their paycheck that week than you usually would.

How is extra time tax calculated?

Whereas there’s no particular ‘extra time tax,’ you’ll have to calculate taxes for extra time similar to you’d for normal taxes. 

Calculate your worker’s extra time tax

When working payroll, tax your worker’s extra time wages along with their common wages. Let’s check out the way you’d calculate the FITW (Federal Revenue Tax Withholdings) for an instance worker, Joaquin, who we’ll faux you pay weekly.

  1. Determine your worker’s whole taxable revenue. Joaquin makes $18 per hour and works 40 hours per week, so he made $720 in common wages.
    However Joaquin additionally labored 7 additional hours of extra time this week. So, in line with the Honest Labor Requirements Act, you must pay him time-and-a-half, or 1.5 occasions his hourly wage for every extra time hour. Joaquin’s extra time price is $27 an hour, and he made ‌$189 in extra time wages. 
    Add the common pay and extra time pay collectively to determine what Joaquin’s taxable revenue is:
    $720 (common earnings) + $189 (extra time earnings) = $909 (whole taxable revenue)
  2. Decide your worker’s submitting standing. Use Joaquin’s Type W-4 to find out whether or not he has any dependents. His submitting standing is marked as ‘single,’ and he hasn’t indicated every other withholdings. Meaning he’ll have the utmost FITW taken from his paycheck in comparison with different workers who file collectively and/or have dependents.
  3. Use the Wage Bracket Methodology tables within the IRS’s Publication 15-T to calculate your worker’s revenue tax withholdings. Go to web page 11 for the ‘Wage Bracket Methodology Tables for Handbook Payroll Methods with Types W-4 from 2020 or Later.’ Use the worksheet, or just scroll right down to the Weekly Payroll Interval tables till you discover Joaquin’s wage bracket for that week. As a result of he made $909 that week, and since he has normal withholding standing as a single filer, you’ll withhold a typical deduction of $75 in revenue taxes for Joaquin.

It’s attainable to do payroll taxes manually, but it surely takes time to calculate revenue tax withholdings for each worker. That’s why we advocate utilizing an automatic payroll supplier software program like Homebase to keep away from tax legal responsibility and make this course of quicker, simpler, and error-free.

Are there any exemptions to the extra time tax legal guidelines?

Figuring out in case your workers are exempt from extra time tax legal guidelines means determining whether or not they’re exempt from extra time pay. In response to the FLSA (Honest Labor Requirements Act), workers are exempt from extra time pay in the event that they meet these necessities:

  • You pay them on a wage foundation: You pay an worker an annual wage quite than an hourly price.
  • You pay them the federal minimal weekly requirement. As of January 2020, workers aren’t entitled to extra time pay if their employer pays them a weekly minimal wage of $684 per week.  
  • Worker tasks cross the duties take a look at for exempt white-collar employees. Employers don’t should pay extra time if their workers’ job description passes the duties take a look at for government, administrative, {and professional} workers. For instance, the FLSA outlines the major obligation {of professional} employees as one which includes “invention, creativeness, originality, or expertise in a acknowledged area of creative or inventive endeavor.”

Go to Homebase’s state labor legal guidelines hub to be taught extra about your state’s necessities for workers who’re exempt and non-exempt from extra time pay.

How Homebase can automate your payroll taxes

As a small enterprise proprietor manually monitoring time and working your individual payroll, it’s not simply taxes that fear you about extra time — it’s payroll compliance as nicely. You need to be sure you’re doing all the things you possibly can to comply with your native labor pointers for extra time.

Homebase’s free time clock instrument takes that off your plate with computerized clock-outs and alerts notifying you when workers are getting near extra time.

You may also use it to arrange break and extra time guidelines that may maintain you compliant with federal, state, and native labor legal guidelines, in addition to FLSA guidelines.

Final however not least, Homebase’s HR instruments and payroll options embrace an intensive library of sources, guides, templates, and automations that will help you get began so that you simply don’t should develop into your individual HR professional when payday comes round.

Additional time tax FAQs

Why is extra time taxed?

Additional time is taxed as a result of the IRS nonetheless considers it a part of an worker’s revenue. Though no particular extra time tax exists, you continue to should withhold federal revenue and FICA taxes from an worker’s extra time wages.

Does extra time get taxed in a different way than common time?

Additional time doesn’t get taxed any in a different way than common wages. Additional time wages can, nonetheless, enhance an worker’s gross pay sufficient that they’ll transfer into a better tax bracket. For instance, if an worker who often earns $800 per week works sufficient extra time to earn $1,000 in a single week, you’ll should withhold extra federal revenue taxes than you often do throughout that week.

What are the tax brackets for 2022?

Beneath are the annual federal revenue tax brackets for 2022 in line with the IRS’s Publication 15 – T. Remember the fact that these tax brackets are for traditional withholding and never for workers who’ve checked the field in Step 2 of Type W – 4:


Married Submitting Collectively
At the least— However lower than— The tentative quantity to withhold is— Plus this share— Of the quantity that the Adjusted Annual Wage or Fee exceeds—
$0  $13,000 $0.00  $0.00  0% $0
$13,000  $33,550  $0.00  10%  $13,000
$33,550  $96,550  $2,055.00  12%  $33,550
$96,550  $191,150  $9,615.00 22%  $96,550
$191,150  $$353,100  $30,427.00  24%  $191,150
$353,100  $444,900  $69,295.00  32%  $353,100
$444,900  $660,850  $98,671.00  35%  $444,900
$660,850  $174,253.50  37%  $660,850


Single or Married Submitting Individually
At the least— However lower than— The tentative quantity to withhold is— Plus this share— Of the quantity that the Adjusted Annual Wage or Fee exceeds—
$0  $4,350  $0.00  0% $0
$4,350  $14,625  $0.00  10%  $4,350
$14,625  $46,125  $1,027.50  12%  $14,625 
$46,125  $93,425  $4,807.50  22%  $46,125
$93,425  $174,400  $15,213.50  24%  $93,425
$174,400  $220,300  $34,647.50  32%  $174,400
$220,300  $544,250  $49,335.50  35%  $220,300
$544,250  $162,718.00  37%  $544,250


Head of Family
At the least— However lower than— The tentative quantity to withhold is— Plus this share— Of the quantity that the Adjusted Annual Wage or Fee exceeds—
$0  $10,800  $0.00  0%  $0
$10,800  $25,450  $0.00  10%  $10,800
$25,450 $66,700  $1,465.00  12%  $25,450
$66,700  $99,850  $6,415.00  22%  $66,700
$99,850  $180,850  $13,708.00  24%  $99,850
$180,850  $226,750  $33,148.00  32%  $180,850
$226,750  $550,700  $47,836.00  35%  $226,750
$550,700  $161,218.50  37%  $550,700




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