Personal Finance

Overtime and marginal tax rate

  • Last Updated:
  • Jan 9th, 2019 1:04 pm
[OP]
Member
Nov 26, 2013
490 posts
31 upvotes

Overtime and marginal tax rate

I am trying to understand income tax and overtime. Before I thought that someone who makes a base salary of $50 000 and makes $25 000 in overtime would pay the same income tax at year end as someone who's base salary is at $75 000, but now I just learnt that overtime is taxed at the marginal tax rate so is my first statement true? Once you file your income tax at year end do they just look at gross income for the year and calculate how much income you owe, so no matter how you make that $75 000 gross(overtime or not) you would end up paying the same amount in income tax at year end? If so, then the reason I guess some people are less inclined to doing some overtime is since it is taxed at the marginal tax rate you receive much less of that money on the following pay check and you need to wait at year end before filing your income tax for it to be adjusted?

Because refusing to do overtime, simply by the principle of paying more tax, without considering personal time to money ratio, is like refusing a promotion for 100 000$ gross pay job because you will be paying more income tax then if your base salary was $75 000?
5 replies
Deal Addict
Aug 30, 2011
3311 posts
1034 upvotes
Ottawa
You pay the same amount tax when you file whether it's a base salary of $75,000 or $50,000 + OT of $25,000. https://www.canada.ca/en/revenue-agency ... ml#federal
Federal tax rates for 2018
-15% on the first $46,605 of taxable income, +
-20.5% on the next $46,603 of taxable income (on the portion of taxable income over 46,605 up to $93,208), +
-26% on the next $51,281 of taxable income (on the portion of taxable income over $93,208 up to $144,489), +
-29% on the next $61,353 of taxable income (on the portion of taxable income over 144,489 up to $205,842), +
-33% of taxable income over $205,842.
[OP]
Member
Nov 26, 2013
490 posts
31 upvotes
OttawaGardener wrote:
Jan 9th, 2019 8:41 am
You pay the same amount tax when you file whether it's a base salary of $75,000 or $50,000 + OT of $25,000. https://www.canada.ca/en/revenue-agency ... ml#federal
Ok it's just overtime is taxed at marginal tax rate right away that is why it looks like it's taxed more but you just need to wait to income tax time for it to get adjusted?
Deal Addict
Jan 30, 2012
1493 posts
801 upvotes
TORONTO
johnnyh55 wrote:
Jan 9th, 2019 7:57 am
I am trying to understand income tax and overtime. Before I thought that someone who makes a base salary of $50 000 and makes $25 000 in overtime would pay the same income tax at year end as someone who's base salary is at $75 000,
That is correct.
johnnyh55 wrote:
Jan 9th, 2019 7:57 am
but now I just learnt that overtime is taxed at the marginal tax rate
That is also correct. A raise, bonus, or interest income would also be taxed at your marginal rate.
johnnyh55 wrote:
Jan 9th, 2019 7:57 am
so is my first statement true?
Yes.
johnnyh55 wrote:
Jan 9th, 2019 7:57 am
Once you file your income tax at year end do they just look at gross income for the year and calculate how much income you owe, so no matter how you make that $75 000 gross(overtime or not) you would end up paying the same amount in income tax at year end?
Yes.

Some people like overtime since it is normally paid at a higher rate than regular salary. Some people don't like overtime since they prefer doing other things with their time (family, recreation, whatever).
johnnyh55 wrote:
Jan 9th, 2019 7:57 am
you receive much less of that money on the following pay check
Canada has cheques, not checks :)

And you are mixing up two different things - the amount of tax you owe, and the amount of tax withheld from each paycheque. CRA's rules for tax withholding on overtime are different than the tax withholding rules for regular salary:

https://www.canada.ca/en/revenue-agency ... e-pay.html

Admittedly, not all employers follow the withholding rules correctly.
[OP]
Member
Nov 26, 2013
490 posts
31 upvotes
M8Rxmjsik wrote:
Jan 9th, 2019 9:20 am
Canada has cheques, not checks :)

And you are mixing up two different things - the amount of tax you owe, and the amount of tax withheld from each paycheque. CRA's rules for tax withholding on overtime are different than the tax withholding rules for regular salary:

https://www.canada.ca/en/revenue-agency ... e-pay.html

Admittedly, not all employers follow the withholding rules correctly.
Thanks that explains it well.
Deal Addict
Nov 8, 2017
1125 posts
553 upvotes
A few people @ work bank their OT and use for time off.
I generally don't do OT, but then again, I rarely call in "sick"

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