Is overtime taxed more in Canada?
No. Overtime is ordinary employment income. It is added to the rest of your income for the year and taxed at the same federal and provincial rates. The only way overtime costs you a higher rate is if it pushes part of your income into a higher bracket, and then only the dollars above the bracket line are taxed at the higher rate.
There is also no Canadian version of the US “no tax on overtime” deduction. As of 2026-11-07, overtime pay in Canada is fully taxable.
Why your overtime cheque looks heavily taxed
Payroll works out income tax on each cheque as if you earned that much every pay period all year. A big overtime week looks like a much bigger salary, so more tax is held back. If your total income for the year ends up lower than that, you get the extra back as a refund when you file your return.
When overtime is paid on a later cheque than the one it was earned in, the CRA tells employers to use the bonus or irregular payment method for income tax and CPP. That method taxes the overtime at roughly your marginal rate, which is what the calculator above estimates.
CPP and EI on overtime (2026)
| Deduction | Employee rate | Stops at |
|---|---|---|
| CPP (base) | 5.95% of earnings over $3,500 a year | $74,600 of earnings (max $4,230.45) |
| CPP2 | 4% of earnings between $74,600 and $85,000 | $85,000 (max $416.00) |
| EI | 1.63% | $68,900 of insurable earnings (max $1,123.07) |
Once you reach the yearly maximum, CPP or EI stops coming off for the rest of the year. That is why overtime late in the year often keeps more of each dollar. Quebec workers pay QPP and a lower EI rate instead.
Tax-free overtime meal allowance
A meal or meal allowance your employer gives you for overtime is not taxable if all three are true: it is reasonable (the CRA generally accepts up to $23), you work at least two hours of overtime right before or after your shift, and the overtime is occasional, usually less than three times a week.
Banked overtime
Banked overtime (time off in lieu) is not taxed until it is paid out or taken as paid time off. When it is paid out, it is taxed like any other pay. In Ontario, banked overtime must be given as 1.5 hours off for each overtime hour. Other provinces differ: Alberta, for example, allows hour-for-hour banking under a written overtime agreement.
Sources: CRA: Overtime payments · CRA: Overtime meals and allowances · CRA: Income tax rates
Questions
Is overtime taxed at a higher rate in Canada?
No. Overtime is taxed at the same rates as the rest of your pay. It only reaches a higher rate if it pushes part of your yearly income into the next tax bracket.
Why does so much tax come off my overtime cheque?
Payroll withholds tax as if every cheque were that size, so a big overtime cheque is taxed as if you earned a bigger salary. If too much was taken, you get it back as a refund when you file.
Does Canada have no tax on overtime?
No. The “no tax on overtime” deduction is a US federal rule for 2025 to 2028. In Canada overtime pay is fully taxable income.
Is an overtime meal allowance taxable in Canada?
Not if it is reasonable (the CRA generally accepts up to $23), you work at least two hours of overtime right before or after your shift, and the overtime happens less than three times a week.