It has nothing to do with overtime you are not taxed by the amount of hours you work, it’s purely by income amount. Someone who earns the same amount in 40 hours as someone who earns that in 80 hours pays the same amount of tax.
It doesn’t make sense to tax people who do overtime more than someone who doesn’t do overtime yet earns the same amount.
edit: here is an example. Lets say you live in a country with two income tax brackets. First bracket is 30% and the second bracket is 35% and applies to earnings over 20k and you get 1000 tax break. Compare someone who earns 30k and 10k in overtime with someone who earns 40k outright
Earnings Person A
Tax
Earnings Person B
Tax
30k
40k
(20k * 30% + 10k* 35% )
9.5k
(20k * 30% + 20k* 35% )
13k
tax break
1k
average tax rate
tax break
1k
average tax rate
tax
8.5k
28.3%
tax
12k
30%
Overtime Earnings
Tax
Overtime Earnings
Tax
10k
average tax rate
0k
(10k * 35% ) (all these earnings fall in the second bracket)
3.5k
35%
0k
average tax rate
average tax rate
Total Tax
12k
30%
Total tax
12k
30%
You see they pay the same amount, so no special tax for overtime it’s just taxed in the higher bracket because it’s earnings above 20k same as the non overtime earnings above 20k. The 1st bracket has been fully utilized before the tax for overtime is calculated. The brackets are like buckets you can only fill them up once. Once a bucket is full the next amount of income is added to the next tax bucket doesn’t matter if it comes from a second job or in how many hours it is earned.
And in this example someone who would earn 15k and 5k in overtime would pay 30% on their overtime earnings. Since it still falls in the first bracket, the total earnings is all in the first bracket thus no higher tax on overtime. Of course with the tax break their total average tax rate would be lower.
Earnings
Tax
15k
(15k * 30%)
4.5k
tax break
1k
average tax rate
tax
3.5k
23.33%
Overtime Earnings
Tax
5k
average tax rate
(5k * 30% ) (still in the first bracket since total is 20k)
It has nothing to do with overtime you are not taxed by the amount of hours you work, it’s purely by income amount. Someone who earns the same amount in 40 hours as someone who earns that in 80 hours pays the same amount of tax.
It doesn’t make sense to tax people who do overtime more than someone who doesn’t do overtime yet earns the same amount.
edit: here is an example. Lets say you live in a country with two income tax brackets. First bracket is 30% and the second bracket is 35% and applies to earnings over 20k and you get 1000 tax break. Compare someone who earns 30k and 10k in overtime with someone who earns 40k outright
You see they pay the same amount, so no special tax for overtime it’s just taxed in the higher bracket because it’s earnings above 20k same as the non overtime earnings above 20k. The 1st bracket has been fully utilized before the tax for overtime is calculated. The brackets are like buckets you can only fill them up once. Once a bucket is full the next amount of income is added to the next tax bucket doesn’t matter if it comes from a second job or in how many hours it is earned.
And in this example someone who would earn 15k and 5k in overtime would pay 30% on their overtime earnings. Since it still falls in the first bracket, the total earnings is all in the first bracket thus no higher tax on overtime. Of course with the tax break their total average tax rate would be lower.