You picked up extra shifts, your pay jumped — and so did the tax on your payslip. Many Australians look at that payslip and conclude that overtime is taxed at some punishing special rate, or even that the extra hours were not worth working. In most cases, neither conclusion is true.
There is no special “overtime tax” in Australia. Overtime is ordinary income, taxed at exactly the same marginal rates as the rest of your pay. What changes is how much tax is withheld from that particular pay — and withholding is not the same as the tax you ultimately owe. This guide explains how overtime is taxed, why a big overtime week can look over-taxed, and how much of your extra pay you actually keep. Figures use the 2026-27 resident tax rates.
The Short Answer: Overtime Is Taxed Like Any Other Pay
Under Australia’s progressive tax system, your income is taxed in slices. For 2026-27 the resident rates are:
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil (tax-free threshold) |
| $18,201 – $45,000 | 15c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,020 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,020 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,370 plus 45c for each $1 over $190,000 |
On top of income tax, most Australians pay the 2% Medicare levy on their full taxable income. Overtime pay is simply added to your other income and taxed through these same brackets. The overtime dollars sit at the top of your income, so they are taxed at your marginal rate — the rate on your last dollar earned — but every dollar below them keeps its lower rate. Only the slice above each threshold is taxed at the higher rate.
This is the myth that needs busting: earning overtime can never make you worse off overall. A higher marginal rate applies only to the income above the threshold, never to your whole pay. You always keep at least 53 cents of every extra dollar (at the top 45% rate plus 2% Medicare levy), and for most workers the figure is far better than that.
Worked Example: $10,000 of Overtime on an $80,000 Salary
Take Maya, a nurse earning a base salary of $80,000 a year. During a busy winter she picks up enough extra shifts to earn $10,000 in overtime at penalty rates, taking her total income to $90,000. Here is what happens:
| Base salary $80,000 | With $10,000 overtime: $90,000 | Difference | |
|---|---|---|---|
| Income tax | $14,520 | $17,520 | +$3,000 |
| Medicare levy (2%) | $1,600 | $1,800 | +$200 |
| Total tax + Medicare | $16,120 | $19,320 | +$3,200 |
| Take-home pay | $63,880 | $70,680 | +$6,800 |
Maya’s $10,000 of overtime cost her $3,200 in extra tax and Medicare — an effective rate of 32% on the overtime — and she kept $6,800 of it. The overtime was taxed at her marginal rate of 30% plus the 2% Medicare levy, because her income sits in the 30% bracket. She did not lose money, and she did not get pushed into a higher bracket: the 37% rate does not start until $135,001.
The same logic holds at any income level. A worker on $50,000 who earns $5,000 in overtime pays 30% plus Medicare on the overtime (because the overtime sits above the $45,000 threshold), keeping about $3,400. A worker on $40,000 who earns $5,000 in overtime pays only 15% plus Medicare on it, keeping about $4,150. Check your own numbers with our overtime calculator, which works out penalty rates and gross overtime pay for your hours.
Why Your Payslip Looks Over-Taxed After Overtime
If the final tax on overtime is only your marginal rate, why does a big overtime week sometimes show a much larger tax deduction? The answer is PAYG withholding — the system your employer uses to deduct tax from each pay.
Payroll software does not know your annual income. It looks at one pay period, annualises it, and withholds tax as if you earned that amount every week of the year. If your normal fortnightly pay is $3,077 (a $80,000 salary) but one fortnight you earn $4,500 because of overtime, the software assumes an annual income of about $117,000 for that pay and withholds at the rates that would apply to $117,000 — including taxing part of it at rates that reflect a higher income than you will actually earn.
The result is over-withholding: too much tax comes out of that particular pay. But it is temporary. When you lodge your tax return, the ATO calculates your tax on your actual annual income, compares it with everything withheld during the year, and refunds the excess. The money is not lost — it is just held by the ATO until tax time.
This annualisation effect is strongest when overtime is irregular — a single huge week, a one-off project, or a large back-pay amount. If your overtime is regular, roughly the same amount every pay, the withholding is close to correct because the annualised figure is close to your real annual income.
Does Overtime Push You Into a Higher Tax Bracket?
Yes, it can — but only the income above the threshold is taxed at the higher rate. Consider a worker earning $130,000 who takes on $10,000 of overtime, reaching $140,000. The first $5,000 of overtime (from $130,000 to $135,000) is taxed at 30% plus Medicare; the remaining $5,000 (from $135,001 to $140,000) is taxed at 37% plus Medicare. The worker’s tax on the first $135,000 is unchanged.
Overtime can also have knock-on effects worth knowing about:
- HECS-HELP repayments. Repayment rates are based on your total repayment income. Extra overtime can push you into a higher repayment bracket, increasing the amount withheld for your study debt.
- Medicare levy surcharge. If your income crosses the surcharge thresholds and you do not hold eligible private hospital cover, the surcharge (1% to 1.5%) can apply. For singles in 2025-26 the base-tier threshold was $101,000.
- Government payments and offsets. Higher income can reduce Family Tax Benefit, childcare subsidy or the low income tax offset. These are annual calculations, so a single big overtime year can have flow-on effects.
- Division 293 tax. If your income plus concessional super contributions exceeds $250,000, an extra 15% tax applies to some super contributions.
None of these means overtime is not worth doing — but if you are close to a threshold, it is worth modelling the full-year impact before committing to a large block of extra hours.
Super on Overtime: The Exception That Matters
While overtime is taxed like ordinary pay, it is treated very differently for superannuation. Overtime payments are specifically excluded from ordinary time earnings (OTE), the base on which the 12% superannuation guarantee is calculated. Your employer does not have to pay super on your overtime hours — unless your award or enterprise agreement says otherwise.
For Maya, that means her $10,000 of overtime generates no compulsory super at all. Had the same $10,000 been ordinary salary, it would have added $1,200 to her super fund. Over a career of regular overtime, the gap compounds significantly: $10,000 of overtime a year for 20 years means roughly $24,000 less in super contributions, before investment earnings.
This is worth factoring into decisions about extra hours. Overtime pays well in cash — penalty rates of 150% to 250% of your base rate are common — but it builds no retirement savings unless you contribute some of it yourself. Salary sacrificing part of your overtime pay into super can be an effective way to capture both the cash benefit and the retirement benefit, while also reducing your taxable income.
Overtime Penalty Rates: What You Should Be Paid
Before worrying about tax, make sure the overtime itself is calculated correctly. Under most awards, the standard pattern is:
- Weekday overtime: time-and-a-half (150%) for the first two or three hours, then double time (200%)
- Saturday: time-and-a-half (150%), often double time after midday
- Sunday: double time (200%)
- Public holidays: double time-and-a-half (250%)
The exact rates depend on your award or enterprise agreement, and some agreements use different structures. The national minimum wage is $26.44 an hour from 1 July 2026, so minimum-wage overtime is at least $39.66 an hour at time-and-a-half and $52.88 at double time, before casual loading if it applies. Casual employees receive their 25% loading on top of the base rate, and penalty rates are generally calculated on the loaded rate under most awards.
If your payslip shows overtime at your ordinary rate, or lumps overtime and penalties into a single unexplained figure, ask payroll for the breakdown. Penalty rates are a legal entitlement, not a favour.
How to Reduce the Tax Bite on Overtime
You cannot avoid tax on overtime — and you should not try to. But there are legitimate ways to manage it:
- Salary sacrifice into super. Directing some overtime pay into super as a concessional contribution means it is taxed at 15% inside the fund instead of your marginal rate, up to the $30,000 annual concessional cap. For a worker in the 30% bracket, that saves 15 cents in every dollar, plus the 2% Medicare levy.
- Ask your employer to withhold extra tax. If you know a big overtime year will leave you with a tax bill, you can ask your employer to withhold additional tax from each pay, smoothing the impact.
- Time your overtime. If you can choose which financial year extra work falls in, spreading a large block of overtime across 30 June can keep you in a lower bracket in each year.
- Claim your deductions. Work-related expenses — uniforms, tools, professional memberships, work-related travel — reduce your taxable income. Keep receipts and claim everything you are entitled to.
- Do not decline overtime because of tax. You always keep the majority of every overtime dollar. Turning down $10,000 of overtime to “save” $3,200 in tax leaves you $6,800 worse off.
Frequently Asked Questions
Is there a special tax rate for overtime in Australia?
No. Overtime is taxed as ordinary employment income at your marginal tax rate. There is no separate overtime tax schedule, and no country-style overtime exemption. The ATO taxes your total income for the year, regardless of how it was earned.
Why was so much tax taken out of my overtime pay?
PAYG withholding annualises each pay period. A large overtime payment makes one pay look like a much higher annual salary, so more tax is withheld from that pay. The excess is refunded when you lodge your tax return, because the ATO calculates your real annual liability.
Do I pay super on overtime?
Not compulsorily. Overtime is excluded from ordinary time earnings, so the 12% super guarantee does not apply to it unless your award or enterprise agreement requires it. You can choose to salary sacrifice overtime pay into super yourself.
Can overtime push me into a higher tax bracket?
Yes, but only the income above the threshold is taxed at the higher rate. Your existing income keeps its lower rates. Moving into a higher bracket never reduces your overall take-home pay.
Is double time on a public holiday taxed differently?
No. Public holiday penalty rates of 250% are taxed at the same marginal rates as any other income. The penalty rate affects how much you are paid, not how it is taxed.
Should I ask my employer to withhold more tax if I work a lot of overtime?
It can be sensible if your overtime is regular and large, because PAYG withholding on regular overtime is usually close to correct — but a big irregular block can still leave a shortfall or a refund. If you are unsure, ask your employer for an upward withholding variation, or set aside some of the extra pay yourself until tax time.
The Bottom Line
Overtime is taxed at your marginal rate — nothing more, nothing less. A worker on an $80,000 salary who earns $10,000 in overtime keeps about $6,800 of it after tax and Medicare. The scary-looking tax deduction on a big overtime payslip is usually just PAYG withholding doing its annualised maths, and the excess comes back at tax time.
The real cost of overtime is not tax. It is the super you do not earn on those hours, and the time you give up. Weigh those honestly, and take the shifts if the money is worth it — because after tax, it almost always is. To work out exactly what your overtime is worth, use our overtime calculator.