This paper studies the increase of losses and derating of distribution transformer, working under harmonic load. The three dimensional time stepping finite element method is (TSFEM) utilized in section 2, as a instruments for modeling the transformer under harmonic load with (THDI = 12%) and viewing magnetic flux density on the windings of distribution transformers. The computer simulation according to the use of the FEM has been improved in Ansoft - Maxwell. In section 3, the effect of harmonic load on transformer load losses has been examined. The result shows that under harmonic load, copper loss and eddy current loss significantly increases. In section 4, derating of transformer under harmonic load based on TSFEM and analytical method by using harmonic loss factor (FHL) has been done.