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Federal Tax Exemption for Overtime Pay

Home Federal Tax Exemption for Overtime Pay

Policy Statement : Overtime earnings are exempt from federal income taxation.

Employers must:

  • Report overtime pay separately from regular wages.
  • Adjust payroll systems to reflect this exemption.

Employees benefiting from this exemption must accurately report their overtime hours. Non-compliance by employers or employees will result in penalties, including audits and fines.

  1. PurposeThis policy acknowledges the sacrifices made by employees working overtime and aims to alleviate their tax burden. By exempting overtime earnings from federal taxation, the policy supports workers’ financial well-being and encourages greater productivity.
  2. ScopeThis policy applies to all employees eligible for overtime pay under federal or provincial labor laws. It covers both hourly and salaried workers who earn overtime compensation.
  3. Definitions
      Overtime Pay: Compensation earned for working hours beyond the standard workweek as defined by federal or provincial labor standards.
    1. Federal Tax: Income tax levied by the federal government.

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