What are the rules about tax on overtime pay?
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Connecticut’s rules regarding the taxation and withholding of overtime pay are as follows:
1. Overtime Pay is Taxable Compensation
Overtime pay is considered “supplemental compensation,” which includes bonuses, commissions, and overtime pay, whether paid at the same or a different time as regular wages.- All amounts that are wages and subject to federal withholding are also wages for Connecticut income tax withholding purposes. This includes overtime pay.
2. Withholding on Overtime Pay
When overtime pay is paid at the same time as regular wages, the employer must combine the regular and overtime pay and determine the amount of Connecticut income tax to withhold as if the total were a single payment for the regular payroll period.- When overtime pay is paid at a different time than regular wages: - If no tax was withheld from the regular wages, the employer must add the regular and overtime pay together and compute the tax on the total amount. - If tax was withheld from the regular wages, the employer must compute the tax on the combined amount, subtract the tax already withheld from the regular wages, and withhold the difference from the overtime pay.
3. Reporting and Remittance
Employers must file all withholding forms and remit all income tax withholding payments electronically.- Employers must provide employees with a federal Form W-2 by January 31 of the following year, showing the correct amount of Connecticut wages paid and Connecticut income tax withheld, including amounts attributable to overtime pay.
4. No Special Exemption for Overtime Pay
There is no Connecticut law or regulation that exempts overtime pay from Connecticut income tax. Overtime pay is treated the same as regular wages for income tax purposes.
5. Nonresidents and Overtime Pay
For nonresident employees, Connecticut income tax is withheld only on the portion of wages (including overtime) attributable to services performed in Connecticut. If a nonresident works partly within and partly outside Connecticut, the employer must allocate the wages (including overtime) based on the proportion of services performed in Connecticut.
6. Supplemental Compensation Withholding Example
If an employee receives overtime pay in the same paycheck as regular wages, the withholding is calculated on the total amount.- If an employee receives a separate overtime check, and tax was already withheld from regular wages, the employer calculates the tax on the combined amount and withholds the difference from the overtime check.
Summary: Connecticut treats overtime pay as fully taxable compensation, subject to the same withholding and reporting requirements as regular wages. There is no exemption or special treatment for overtime pay under Connecticut law.
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