Is Overtime Pay Taxed More Heavily? 2026 Expert Guide

How Is Overtime Taxed in the UK?

There’s no separate overtime tax rate at HMRC. Your overtime is taxed at the same marginal rate as everything else you earn.

Basic-rate taxpayer? Your overtime is taxed at 20%. Higher-rate taxpayer? It’s 40%. No penalty, no surcharge for staying late. What moves the needle is your total income for the year and which band the money lands in.

Why Overtime Can Tip You Into a Higher Tax Bracket

The sticking point is that overtime adds to your yearly total, and a big enough total can nudge part of your income over a threshold.

For 2026/27, the higher-rate threshold is £50,270. Everything up to that point is taxed at 20%; anything above it at 40%. So if overtime pushes you past £50,270, only the slice above the line is taxed at 40% — not your whole salary, and not the whole of your overtime. (These bands cover England, Wales and Northern Ireland. Scotland sets its own income tax rates and bands, so the split looks different there, though the principle holds.)

Take a worker on £45,000 who picks up £8,000 of overtime, landing at £53,000:

• £5,270 of that overtime (up to £50,270) is taxed at 20%
• £2,730 (the part above £50,270) is taxed at 40%

The average rate on the £8,000 ends up higher than 20% because part of it crossed the line. That’s the bracket effect doing the work — not overtime being singled out.

How National Insurance Changes the Picture

Here’s the part that catches people out, because National Insurance behaves the opposite way to what most expect. In 2026/27, employees pay 8% on earnings between £12,570 and £50,270, then just 2% on anything above £50,270.

So the moment your pay clears £50,270, the NI rate on that top slice drops from 8% to 2%. Crossing into higher-rate territory lifts your income tax but actually trims the NI on the same money.

Put the two together and the real cost looks like this:

• On basic-rate earnings: 20% tax + 8% NI = 28%
• On earnings above £50,270: 40% tax + 2% NI = 42%

That 42% is the most a typical employee parts with at the margin — a long way off the “you’ll lose half” line you’ll hear in the staff room.

Overtime Tax Example: The Numbers in Practice

Sarah is a project manager on £48,000. She works 80 hours of overtime at £30 an hour, earning an extra £2,400, which takes her to £50,400 — just over the higher-rate threshold.

Her overtime splits in two:

• £2,270 sits below £50,270: 20% tax (£454) + 8% NI (£181.60) = £635.60
• £130 sits above £50,270: 40% tax (£52) + 2% NI (£2.60) = £54.60

All in, about £690 comes off her £2,400 — an effective rate of roughly 29%. Sarah keeps around £1,710. Yes, the £130 over the line costs her a touch more, but the vast majority of that overtime is taxed exactly like her salary.

How Are Bonuses Taxed?

Bonuses play by the same rules. A bonus is treated as ordinary income and taxed at your marginal rate — there’s no separate “bonus tax”. A big one can shunt part of your income into the 40% band and make that month’s deductions look brutal, but a £5,000 bonus isn’t taxed differently because of what it’s called. It’s taxed on the basis of your total income for the year.