Should overtime be taxed in the first place? And is on call pay taxable in all states or just some of them? For example, if overtime taxed differently in California compared to the Washington State standby pay?
It would be wise to first understand how the IRS views on call pay. Next, you can familiarize yourself on how different states view overtime.
Read More: How to Calculate Social Security Tax
How the IRS Views On-Call Pay
On-call time is defined as the period or hours that an employee spends in the workplace or on the employer’s property during the worker’s off hours. Employees receive pay for this time, and this pay is taxable just like other types of work-related income. However, if being on call does not involve being paid, no tax is imposed.
FLSA Provisions for On-Call Work
The Fair Labor Standards Act states that when an employer requires an employee to remain on call at the place of work, the employer must pay the employee for this time. The employer may also have to pay if an employee who is on call does not have to stay at work but can do limited things with his time. However, if an employer simply requires an employee to leave contact information in case the employer needs him, this does not constitute work for which the employer must compensate him.
Compensation of On-Call Time
If an employer requires a certain employee to be on call during off hours, that employee is considered to be at work. An employee who is obliged to stay in the workplace is unable to use that specific time for personal purposes. The Fair Labor Standards Act considers that waiting time as hours worked, and that time must be compensated by the employer.
Taxing On-Call Pay
On-call pay is taxable because on-call time is considered work rendered by an employee and paid for by the employer in the form of regular or overtime wages. According to the Fair Labor Standards Act Advisor, the time that an employee asks a worker to be on the work premises counts as hours worked, whether the employee is doing something or waiting for something to do.
The Supreme Court ruled that employers must compensate employees covered by the FLSA for any mental or physical effort, even if that effort is not burdensome, as long as it is something that benefits the employer. And that includes security screenings.
Basics of Taxable Income
The Internal Revenue Service provision on taxable employee compensation includes gross income or everything that an employee receives in payment for personal services such as wages, salaries, commissions, fees, tips and other forms of compensation.
Employers must provide employees with a specific form called W-2, Wage and Tax Statement, which indicates compensation received for such services. Both gross and taxable wages can be found on the W-2.
On-call pay is part of the wages and salaries received by employees for working for an employer. Employers must include any payment given to employees in the gross taxable income of the workers’ tax returns. These wages are subject to FICA withholdings for Social Security and Medicare. Half of FICA tax is paid by the employer, the other half is paid by the employee.
Read More: W-2 Forms: What It Is, Who Gets One & How It Works
Income Tax Brackets
Taxable income is the determining factor for tax brackets. Taxable income rates are set by the IRS tax tables if the income is under $100,000. The majority of people will use the tax table to determine their tax bracket, which is based on income, marital status and whether an individual is eligible as a head of household.
If an on-call employee's income fits the range, they may be eligible for the Earned Income Tax Credit, which is a refundable credit. Refundable credits are payable to the taxpayer as part of their tax refund.
Some on-call employees, such as certain medical professionals, may earn more than $100,000 each year due to salary or high levels of overtime. On-call employees earning more than $100,000 will not use the tax table. Instead, their income tax bracket will be calculated using the Tax Computation Worksheet.
- Lawyers: Getting Paid for On-Call Time
- Dol.Gov: Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act (FLSA)
- IRS.Gov: Part 6. Human Resources Management
- JDSupra: Pennsylvania Supreme Court rules that employers may be liable for workers’ security check time
- IRS.Gov: Topic No. 751 Social Security and Medicare Withholding Rates
- IRS.Gov: 1040and 1040-SR TAX AND EARNED INCOME CREDIT TABLES
Ronald Kimmons has been a professional writer and translator since 2006, with writings appearing in publications such as "Chinese Literature Today." He studied at Brigham Young University as an undergraduate, getting a Bachelor of Arts in English and a Bachelor of Arts in Chinese.