At which point is overtime not worth it due to taxes in my specific situation with multiple OT rates?

The good news is that the "overtime isn't worth it because of taxes" myth is mostly false! The US has a progressive tax system with marginal tax brackets. This means only the income that falls within a specific bracket gets taxed at that bracket's rate - not your entire income. For example, if working overtime pushes some of your income from the 22% to the 24% bracket, only the amount that exceeds the 22% bracket threshold gets taxed at 24%. The rest is still taxed at lower rates. So while you might pay slightly higher taxes on the last dollars you earn through overtime, you'll never take home less money overall by working more hours. Each hour of overtime will still increase your take-home pay, though the increase might be slightly less than you'd calculate based on your gross pay. Given your various overtime rates (1.5x, 2x, and 3x), the 3x overtime is especially valuable even after taxes because the rate is so much higher than your base. The only real consideration is whether the time and effort of working those extra hours is worth what you're keeping after taxes.

I struggled with this same question last year when I was working crazy OT hours. I found this tool at https://taxr.ai that really helped me understand my specific situation. You can upload your paystubs and it breaks down exactly how much of each overtime hour you're actually keeping after taxes. What surprised me was seeing the actual numbers for my specific situation instead of just general advice. For example, I found out that my 2x overtime was actually giving me about 1.6x my regular hourly rate after taxes, which was still totally worth it.

I was really skeptical about what u/TaxOvertime said about that tax tool, but I decided to try it anyway because I was working 60+ hours weekly and wanted to know if I was being smart or stupid with my time. Gotta say, I was surprised. The https://taxr.ai site actually showed me that despite being in a higher tax bracket due to my overtime, I was still keeping about 68% of my 1.5x overtime pay and 72% of my 2x overtime. That was way better than I thought! The visual breakdown helped me see exactly where my money was going. Completely changed how I think about picking up extra shifts now. No more listening to the guys at work who kept saying I was "working for nothing" after hitting certain hours.

If you're working that much overtime and worried about tax implications, another big issue is getting your tax withholding right. The IRS withholding tables aren't great at handling variable income like lots of overtime, and you might end up with too much or too little withheld. I spent HOURS trying to get someone at the IRS to help me adjust my withholding last year when I was in a similar situation. Finally found https://claimyr.com and used their service to actually get through to an IRS agent (you can see how it works here: https://youtu.be/_kiP6q8DX5c). They connected me with someone who explained exactly how to adjust my W-4 for my overtime situation. Saved me from a huge tax bill at the end of the year since my employer was under-withholding on my OT pay.

I need to publicly eat my words about the Claimyr service I called a scam. After my skeptical comment, I was still desperate to talk to the IRS about my tax situation with a bunch of overtime pay, so I tried it. It actually worked exactly as described. I got a text when they were nearing the front of the queue, and then got connected directly to an IRS representative who helped me figure out my withholding for my irregular income. I was on hold for maybe 2 minutes total instead of the 1+ hour I spent last time I tried calling myself (before hanging up in frustration). The IRS agent said they were getting a lot of calls through this service and that it was legitimate.

One thing nobody's mentioned yet is that your employer might be withholding taxes incorrectly on your overtime pay! Many payroll systems treat each paycheck as if that's what you make all year, so they might be over-withholding when you have a big overtime check. For example, if one big paycheck makes it look like you'll earn $130k annually, they'll withhold at higher rates even though your actual annual income might be much lower. You might get this back when you file your taxes, but it can make your overtime checks look smaller than they should be. Check with your payroll department about how they handle withholding on overtime.

Just want to add something important that many people miss when talking about "is overtime worth it" - consider your EFFECTIVE tax rate vs your MARGINAL tax rate. Your effective tax rate is the total taxes paid divided by your total income, while your marginal rate is the tax on your last dollar earned. For example, if you're in the 24% bracket, your overtime isn't being taxed at 24% overall - only the portion that falls into that bracket. Your effective tax rate might only be 15-18% even if your marginal rate is 24% or higher. The 3x overtime you're getting is definitely worth it from a pure numbers perspective, but whether the time sacrifice is worth it is a different question!

This is such a helpful thread! I've been in a similar situation where I was hesitant to pick up extra shifts because of tax concerns. One thing I'd add to all the great advice here is to keep track of your year-to-date earnings throughout the year. Since you're working variable overtime, your income might fluctuate significantly from month to month. This can help you make better decisions about when to take on extra hours. Also, don't forget that overtime can sometimes push you into higher tax brackets temporarily, but it might also increase your Social Security benefits down the line since those are calculated based on your highest 35 years of earnings. With those overtime rates you're getting (especially that 3x pay!), you're definitely coming out ahead financially. The real question is just whether the work-life balance trade-off is worth it for you personally. But from a pure tax perspective, every hour you work will still put more money in your pocket.

This has been such an eye-opening thread! I'm in a similar situation where I've been turning down overtime shifts because I was worried about getting "taxed to death" on the extra pay. Reading through all these explanations about marginal vs effective tax rates really cleared things up for me. I had no idea that only the income above each bracket threshold gets taxed at the higher rate - I thought once you hit a new bracket, ALL your income got taxed at that higher percentage! The point about tracking year-to-date earnings is brilliant too. I think I'm going to start keeping better records so I can make smarter decisions about when to pick up extra shifts throughout the year. One question I have - for someone like the OP who has multiple different overtime rates (1.5x, 2x, and 3x), would it make sense to prioritize certain types of overtime over others from a tax perspective? Or since they're all still beneficial after taxes, would you just take whatever overtime is available?

I've been lurking on this thread because I'm dealing with the exact same situation! Working in manufacturing with tons of OT available but always second-guessing myself on the tax implications. What really hit home for me was the example someone gave showing that even at 3x pay, you're still keeping over $100/hour after taxes. That's more than double your regular rate even after Uncle Sam takes his cut! One thing I learned the hard way - make sure you're setting aside some of that overtime money for taxes if your employer isn't withholding enough. I got burned last year when I worked a ton of OT in Q4 but my withholding was based on my regular pay rate. Ended up owing at tax time instead of getting my usual refund. But the bottom line everyone's been saying is absolutely true - you'll ALWAYS make more money by working more hours, even if you jump tax brackets. The math just doesn't work any other way with our progressive tax system. Now I just focus on whether the time away from family is worth the extra cash, not whether the taxes make it pointless.

This thread has been incredibly helpful! I'm actually a tax preparer and see this confusion about overtime and tax brackets constantly during tax season. People come in convinced they "lost money" by working overtime, but when we run the actual numbers, they always made more. One additional point I'd make - if you're consistently working this much overtime, you might want to consider increasing your 401k contribution percentage if your employer offers it. Not only does this reduce your taxable income (which can help offset some of that bracket creep), but you're also saving more for retirement during these high-earning periods. With your 3x overtime rate especially, even maxing out your 401k contribution ($23,000 for 2024 if you're under 50) would still leave you way ahead financially compared to your base pay alone. Plus the tax-deferred savings means more of that overtime money stays in your pocket now. Just something to consider as you're clearly in a great position to build wealth with these overtime opportunities!