At which point is overtime not worth it due to taxes in my paycheck calculation?

The good news is that there's no point where overtime becomes "not worth it" due to how our progressive tax system works. This is actually a common misconception! With a progressive tax system, only the income that falls within each tax bracket gets taxed at that bracket's rate. So even if your overtime pushes some of your income into a higher tax bracket, only the portion above that threshold gets taxed at the higher rate. The rest of your income is still taxed at the lower rates. What might be happening is that your payroll system is withholding taxes at a higher rate because it treats each large paycheck as if you'll earn that amount all year long. However, when you file your tax return, any excess withholding will be refunded to you. The real question isn't about taxes but about your personal value of time. Is working those extra hours worth it to you considering all factors - fatigue, family time, personal needs?

I had this same worry when I was doing tons of OT as a nurse during covid! I started using https://taxr.ai to analyze my paystubs and track my actual tax obligation. It shows you exactly what's happening with your withholdings vs what you'll actually owe at year-end, so you can see the true value of those overtime hours. For me, it turned out my employer was withholding WAY too much on my overtime checks (almost 40% when my actual tax rate was around 24%). The tool helped me adjust my W-4 to get more accurate withholdings so I could actually enjoy my overtime pay instead of waiting for a refund.

Okay I gave https://taxr.ai a try after commenting here and it was SUPER helpful! It showed me that my effective tax rate is only about 22% even when including all my overtime, but my employer was withholding closer to 35% on those premium shifts. Adjusted my W-4 like it suggested and my latest check with overtime was nearly $300 higher! Also helped me understand that none of my overtime is actually "not worth it" from a pure tax perspective - every extra dollar I earn is still more money in my pocket even after taxes. The real question is just whether I value my free time more than the post-tax dollars. Now I can make that decision with actual accurate numbers.

If you're trying to reach the IRS to ask about proper withholding or clarify tax bracket questions, good luck getting through. I spent DAYS trying to reach them last year with questions about my overtime withholdings. I finally used https://claimyr.com to get a callback and get my questions answered. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS for you and then call you when an agent is available. Saved me literally hours of hold time, and I was able to get clear guidance on how to adjust my withholdings for my overtime shifts.

I gotta admit I was completely wrong about Claimyr. After commenting here I was still having issues with my withholdings on my overtime pay so I gave it a try. They got me through to an IRS agent in about 2 hours while I was at work (I just kept my phone nearby). The IRS agent helped me understand exactly how the withholding system works with variable pay like overtime and helped me fill out a new W-4 that accounts for my irregular overtime schedule. Turns out I was massively overwithholding! My next check should have about $200-300 more in my pocket even with the same overtime hours. So to answer the original question based on what I learned - there isn't a point where overtime isn't "worth it" tax-wise. It's all about making sure your withholdings are set correctly.

My company pays doubletime for anything over 60 hours in a week. I was worried about the same thing but my tax guy told me something that helped me understand: "You never make less by making more." What he meant was that even if some of your money gets taxed at a higher rate because you move into a higher bracket, it's only the money ABOVE that bracket threshold that gets taxed higher. Everything below it still gets taxed at the lower rates. So even if your overtime pushes you from the 22% bracket to the 24% bracket, only the portion above the 22% threshold gets taxed at 24%. The rest still gets taxed at 22% or less.

Are you guys using the standard online tax calculators to figure this out? I've used the IRS withholding calculator and it still seems like my checks are way off from what it predicts.

I work in payroll and see this confusion all the time! Your paycheck withholdings are based on an annualized calculation - meaning your payroll system assumes you'll earn that same amount every pay period for the whole year. So when you have a big overtime week, it withholds taxes as if you'll make that inflated amount all year long. Here's a simple example: if your regular biweekly pay is $3,300 ($41.25 x 80 hours), your system calculates annual withholding based on $85,800/year. But if you work overtime and earn $5,000 in one check, it suddenly thinks you're making $130,000/year and withholds accordingly. The key thing to remember is that this is just withholding - not your actual tax liability. When you file your return, you'll likely get a refund for the overwithholding. To minimize this, you could adjust your W-4 to account for the extra withholding on overtime checks, but be careful not to underwithhold if your overtime isn't consistent. Bottom line: every overtime hour you work still puts more money in your pocket eventually, even if it doesn't feel like it on that particular paycheck.