Overtime can feel like a strange trade-off. You pick up extra shifts or stay back late, the gross pay on your payslip looks fantastic — and then the tax withheld seems to eat a disproportionate chunk of it. Plenty of Australians conclude that the extra hours “aren’t worth it” because the overtime supposedly pushed them into a higher tax bracket.
The good news is that the way tax brackets actually work in Australia is far kinder than that worry suggests. Overtime never re-taxes your whole income at a higher rate. Only the extra dollars that fall into a higher bracket get taxed at the higher marginal rate — everything you were already earning is taxed exactly as before. This article walks through how the 2025–26 resident tax brackets treat overtime pay, shows two worked examples with full figures, and explains why your payslip sometimes withholds more tax than you really owe.
How marginal tax rates work in Australia
Australian income tax is charged on taxable income — broadly, your total assessable income for the year minus allowable deductions. Tax rates are marginal, meaning each bracket’s rate applies only to the dollars of income that fall inside that bracket. Moving into a higher bracket does not change the tax rate on income you earned below it.
For 2025–26, the resident tax rates (excluding the Medicare levy) are:
| Taxable income | Tax on this income | Marginal rate |
|---|---|---|
| $0 – $18,200 | Nil | 0% |
| $18,201 – $45,000 | 16c for each $1 over $18,200 | 16% |
| $45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 | 30% |
| $135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 | 37% |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 | 45% |
On top of this, most taxpayers pay the Medicare levy of 2% of taxable income (subject to low-income thresholds), and eligible low-income earners receive the Low Income Tax Offset (LITO) of up to $700, which phases out above $37,000.
Think of it like filling buckets: your first $18,200 fills the tax-free bucket, the next dollars fill the 16% bucket, and so on. Overtime pay simply pours more dollars into whichever bucket you are currently filling. Nothing that is already in the buckets changes.
Does overtime push you into a higher tax bracket?
Overtime pay counts as ordinary income. It is added to your base salary to arrive at your total annual taxable income, and the brackets apply to that total. So yes, enough overtime can move your total into a higher bracket — but the critical point is that only the dollars above the threshold are taxed at the higher rate.
Say you earn $130,000 and a bumper run of overtime takes you to $140,000. You do not suddenly pay 37% on the full $140,000. Your first $135,000 is taxed exactly as it would have been at $135,000 — you pay 37% only on the final $5,000. The tax on that last $5,000 is $1,850. That is all.
It is also worth remembering that brackets are annual. One big overtime week does not change your tax bracket by itself. What matters is your total taxable income for the full financial year. A single $2,000 overtime fortnight affects your bracket only if your yearly total crosses a threshold as a result.
Worked example 1: $70,000 salary plus $10,000 overtime
Take someone on a $70,000 base salary who earns $10,000 of overtime across the year, for a taxable income of $80,000. At $70,000, every extra dollar is taxed at the 30% marginal rate, and because $80,000 is still well under the $135,000 threshold, the entire $10,000 of overtime is also taxed at 30%.
| Component | Amount |
|---|---|
| Base salary | $70,000 |
| Overtime earnings | $10,000 |
| Total taxable income | $80,000 |
| Marginal rate on overtime dollars | 30% |
| Income tax on the $10,000 overtime | $3,000 |
| Medicare levy (2%) on the $10,000 | $200 |
| Kept from the $10,000 overtime | $6,800 |
For context, the tax on the base salary alone would be $11,788 (before Medicare and offsets). With overtime, total income tax is $14,788 — exactly $3,000 more. You keep $6,800 of the $10,000. Not a single dollar of your original $70,000 is taxed any differently because you worked overtime.
Worked example 2: $130,000 salary plus $10,000 overtime
Now take someone on a $130,000 base salary who earns $10,000 of overtime, for $140,000 total. This time the overtime straddles a bracket boundary: the first $5,000 sits below $135,000 and is taxed at 30%, while the remaining $5,000 sits above $135,000 and is taxed at 37%.
| Component | Amount |
|---|---|
| Base salary | $130,000 |
| Overtime earnings | $10,000 |
| Total taxable income | $140,000 |
| Overtime taxed at 30% (first $5,000) | $1,500 |
| Overtime taxed at 37% (next $5,000) | $1,850 |
| Total income tax on the $10,000 overtime | $3,350 |
| Medicare levy (2%) on the $10,000 | $200 |
| Kept from the $10,000 overtime | $6,450 |
The tax on a $130,000 salary alone is $29,788 (before Medicare). At $140,000 it is $33,138 — exactly $3,350 more, matching the figure above. Notice how gentle the “higher bracket” effect really is: crossing the $135,000 threshold added just $350 of extra tax on the second $5,000 (37% versus 30%). The higher bracket did not swallow the overtime, and it certainly did not touch the tax on the base salary.
Want to run your own numbers? The overtime calculator estimates your take-home pay on overtime at Australian rates, and the income tax calculator shows how brackets apply to your total salary.
Why your payslip makes overtime look “punishing”
If the maths above is so reasonable, why does a payslip with overtime often show a brutal amount of tax withheld? The answer is PAYG withholding, and it works differently from your actual annual tax bill.
Your employer must withhold tax each pay cycle as if that pay cycle’s earnings were your earnings all year. When you earn a big overtime payment in one fortnight, the payroll system annualises that fortnight — it pretends you earn that much every fortnight. That pushes the assumed annual income into a higher bracket, so a higher withholding rate is applied to the overtime dollars.
This is almost always over-withholding. When you lodge your tax return, the ATO assesses your actual annual taxable income and calculates your real tax. The excess withheld is not lost — it comes back to you, usually as a bigger tax refund. So if a fat overtime payslip showed scary withholding, the tax return is where the correction happens.
There is one genuine caveat: the withholding is only an estimate. If overtime is regular rather than occasional — you work extra shifts nearly every week — the annualised figure is roughly right and the withholding is close to your real liability. The over-withholding effect is strongest for one-off or seasonal overtime spikes.
Superannuation on overtime: 12% applies
One of the most overlooked upsides of overtime is super. Under the Superannuation Guarantee, employers must pay 12% of your ordinary time earnings into super, and overtime generally counts as ordinary time earnings for SG purposes. On $10,000 of overtime, that is an extra $1,200 flowing into your super balance — money you never see on the payslip but that still forms part of your total return on the extra hours.
Note that the SG is calculated per quarter against the maximum contribution base, so very high earners approaching the cap should be aware of the quarterly limit — but for most people, overtime simply means proportionally more super.
HECS/HELP: overtime can trigger higher repayments
If you have a HECS-HELP or other study and training support loan, overtime can affect your compulsory repayments. For 2025–26, compulsory repayment begins at a repayment income of $67,000, under a marginal repayment system where the starting rate is 15 cents for each dollar over the threshold.
Example: if your base salary is $64,000 and overtime takes your repayment income to $70,000, you cross the threshold and owe a repayment of 15% on the $3,000 above $67,000 — $450. This is an extra cost of overtime that many graduates miss. Unlike tax brackets, the HECS repayment can change the effective rate on your base income slightly if it lifts your income into a higher repayment rate tier, so it is worth checking where your total lands.
What changes in 2026–27
Legislated changes will reduce the tax rate on the $18,201–$45,000 bracket from 16% to 15% from 1 July 2026. If your income sits mostly in that range, the tax on overtime dollars in that band will fall slightly next financial year. The examples above use current 2025–26 rates.
Frequently asked questions
Does overtime put me in a higher tax bracket?
Only in the narrow sense that your total annual income rises. Crossing a threshold does not re-tax your existing income — only the dollars above the threshold are taxed at the higher marginal rate. On $10,000 of overtime that straddles the $135,000 boundary, the extra tax versus staying below it is just $350.
Is overtime taxed at a higher rate than normal pay?
No. Overtime is ordinary income and taxed at exactly the same marginal rates as your base salary. The confusion comes from PAYG withholding: a big overtime payment in one pay cycle makes payroll software withhold as if you earned that amount all year, so the withholding rate looks higher. Your actual tax is reconciled at tax return time.
Why did I get taxed so much on overtime this week?
PAYG withholding annualises each pay. A one-off overtime payment is treated as though your pay were that high every pay period, so the withheld amount assumes a higher annual income — often well above your real one. The excess typically returns to you as part of your tax refund.
Do I pay the Medicare levy on overtime?
Yes. The 2% Medicare levy applies to your total taxable income, including overtime earnings. In the examples above, $10,000 of overtime attracts $200 of Medicare levy. (Low-income thresholds can reduce or remove the levy for some taxpayers.)
Does my employer pay super on overtime hours?
Generally yes. Overtime counts as ordinary time earnings for Superannuation Guarantee purposes, so your employer must pay the 12% SG rate on overtime earnings too — roughly $1,200 of extra super for every $10,000 of overtime.
Can overtime affect my HECS/HELP repayments?
Yes. Compulsory HECS-HELP repayments start at $67,000 of repayment income in 2025–26, at a marginal rate of 15c per dollar over the threshold. Overtime that lifts you across the threshold creates a repayment obligation on the amount above it, so factor that into the true value of the extra hours.
So is overtime worth it after tax?
For almost everyone, yes. Because only the marginal dollars above each threshold face a higher rate, you always keep the majority of overtime pay — around $6,800 of every $10,000 at a 30% marginal rate, and even at the 45% top rate you keep more than half. Add the 12% super contribution your employer pays on top, and the effective return on the hours is higher than the payslip suggests. The apparent “punishment” on a big overtime week is usually just PAYG over-withholding that reconciles at tax return time.
Before deciding whether extra shifts are worth it for you, run the figures: the overtime calculator estimates your take-home on overtime pay, and you can sanity-check your bracket position with the income tax calculator — for instance, on a $100,000 or $80,000 salary. As always, this article is general information only and not financial advice; for personal tax questions, speak to a registered tax agent.