Overtime is not taxed at a special rate. It is added to your pay for the period and taxed at your MARGINAL rate, the rate the next pound falls in. Between the Personal Allowance and £50,270 that is 20% Income Tax plus 8% National Insurance, so £100 of overtime keeps £72. Above £50,270 it is 40% plus 2%, so the same £100 keeps £58. The reason overtime feels punitively taxed is that your average deduction rate on a £30,000 salary is 16.27%, and the marginal 28% is nearly double it.
Marginal, not average
Your average rate is every deduction divided by the whole salary, and it is held down by the Personal Allowance, which is a fixed sum taxed at nothing. Your marginal rate is what happens to the NEXT pound, and it has no allowance left in it. On £30,000 the average is 16.27% and the marginal is 28%. On £60,000 the average is 24.40% and the marginal is 42%. Overtime, a bonus and a pay rise are all taxed at the marginal figure, which is why a rise never lands as much as it reads.
The rates a pound of overtime actually meets
Below the Personal Allowance: no tax, and no National Insurance below the primary threshold, so the whole pound is yours. Between the allowance and £50,270: 20% plus 8%, keeping 72p. Between £50,270 and £100,000: 40% plus 2%, keeping 58p. Between £100,000 and £125,140 the Personal Allowance is withdrawn at £1 for every £2, which makes the effective rate 60% plus 2%, keeping 38p. Above £125,140: 45% plus 2%, keeping 53p. That £100,000 to £125,140 band is the one worth planning around, and a pension contribution is the usual answer.
Why one big overtime month over-taxes and then corrects
PAYE is cumulative but it predicts. A large single payment in one month can push that period's annualised position into a higher band, so the code takes higher-rate tax on part of it even though your year will not end there. The following months then correct back, because each period recalculates the whole year to date. If your year genuinely ends in the basic-rate band, you will have the money back through the payroll before the year is out. It is the one case where the payslip looks wrong and nothing is.
What overtime does not change
It does not change your tax code, your Personal Allowance or your bands. It does not move your pension contribution unless the scheme is based on total pay rather than qualifying earnings, which is worth checking because it can make an overtime month quietly better. It can, however, push a student loan repayment up in that period, because those are charged on pay above a threshold per period rather than across the year, and unlike tax they do not fully correct back. And where overtime is paid at a premium, time and a half or double, the premium is pay like any other and is taxed the same way.
Working out an hour honestly
Take your hourly rate, multiply by the premium, then multiply by one minus your marginal rate. On £30,000 across a 37.5-hour week the rate is £15.38 an hour; time and a half is £23.08; at a 28% marginal rate that hour keeps £16.62. On £60,000 the rate is £30.77, time and a half is £46.15, and at 42% the hour keeps £26.77. Comparing an overtime hour to a day off is the comparison most people are really making, and doing it in net terms is the only way to make it.
Questions people ask about overtime tax calculator
Is overtime taxed more than normal pay?
No. It is taxed at your marginal rate, which is what the next pound of any pay would be taxed at. It feels higher because it is compared with your average rate, which the Personal Allowance holds down.
How much of £100 of overtime do I keep?
£72 if the pay falls in the basic-rate band, £58 between £50,270 and £100,000, £38 between £100,000 and £125,140 where the allowance is being withdrawn, and £53 above that.
I was taxed heavily on one overtime month. Will I get it back?
If the year ends in a lower band, yes, through the payroll in later months, because each period recalculates the year to date. If the year genuinely ends in the higher band, the tax was right.
Does overtime affect my student loan repayment?
It can. Loan repayments are charged on pay above a threshold in each pay period, so a big month costs more and, unlike Income Tax, it does not correct back over the year.