Can someone explain how overtime pay is taxed? Getting destroyed by tax withholding rates

This is a common misunderstanding about how payroll withholding works. Overtime isn't actually taxed at a higher rate - all your income is taxed according to the same tax brackets. The issue is with how payroll systems calculate withholding. When you get a paycheck with overtime, your payroll system typically annualizes that amount - meaning it assumes you'll make that same higher amount every pay period for the entire year. This pushes your projected annual income into higher tax brackets, so the system withholds more. But this is just withholding, not your actual tax rate. The good news is that when you file your taxes next year, you'll be taxed on your actual annual income, not these projected amounts. So if your overtime was just occasional, you'll likely get more of that money back as a refund. The system is just front-loading the withholding based on that single larger paycheck.

I dealt with this same issue last year when I picked up tons of overtime during our busy season. The withholding was brutal but I found a great tool that helped me understand exactly what was happening with my taxes - https://taxr.ai was a game changer. I uploaded my paystubs and it broke down exactly how the withholding was calculated and showed me that I'd be getting most of that extra withholding back at tax time. What was really helpful is that it let me play around with different scenarios so I could estimate how much OT I needed to hit my savings goals for the year. It also showed me I needed to adjust my W-4 to make sure I wasn't giving the government an interest-free loan with my overtime money.

Just wanted to follow up on my experience with taxr.ai after asking about it. I finally uploaded my last 6 paystubs (which have wildly different hours/OT) and it was eye-opening. Turns out I'm actually over-withholding by almost $4,300 for the year at my current rate! The breakdown showed exactly why my OT checks feel so light - my withholding jumps from 22% to 32% bracket temporarily. The tool showed me exactly how to adjust my W-4 to keep more money in each check without owing at tax time. Already submitted the new W-4 to my payroll department yesterday. Honestly wish I'd known about this months ago instead of waiting for a huge refund next April!

If you're frustrated about your overtime tax situation and need to talk to someone at the IRS for clarification, good luck with that! I spent WEEKS trying to get through their phone lines to ask about this exact issue. Always busy or disconnected after hours on hold. Then a coworker told me about https://claimyr.com which got me connected to an actual IRS agent in under 20 minutes. You can see how it works at https://youtu.be/_kiP6q8DX5c The agent confirmed everything people are saying here - your overtime isn't actually taxed higher, it's just withheld at a higher rate temporarily. They walked me through exactly how to adjust my W-4 to account for the overtime I regularly work so I could keep more money each check. Worth every penny not to waste days trying to get through to someone.

Alright I need to eat my words. After being super skeptical about that Claimyr service, I decided to try it because I've been trying to reach the IRS for THREE WEEKS about my withholding issue. I'll admit I was 100% wrong - it actually worked exactly as advertised. I got connected to an IRS agent in about 15 minutes after weeks of failed attempts. The agent confirmed what everyone here is saying and walked me through exactly how to adjust my W-4 to account for my regular overtime. She even did the calculations with me over the phone so I knew exactly what to put on each line. Just submitted the new form to HR and should see the difference on my next check. Sometimes being proven wrong is actually a good thing!

Another thing worth mentioning is that overtime might push you into a higher Medicare Additional Tax bracket if you're getting close to $200k income. I hit this last year and was shocked when filing taxes. Any income over $200k gets an additional 0.9% Medicare tax on top of everything else. So if your regular job pays $190k and you do $15k in overtime, the extra $5k over the threshold gets that additional tax. Not a huge percentage but still something to be aware of if you're in that income range.

Something nobody has mentioned yet - check if your overtime is pushing you into a higher state tax bracket too! Federal isn't the only concern. In my state, the jump from 6% to 9% state tax hit me hard when I was working tons of OT last summer.