Is Overtime Taxed More? How Overtime Pay Works

It's one of the most common payroll myths: that overtime is taxed at a higher rate, so it's "not worth it." It isn't. An overtime dollar is taxed exactly like a regular dollar. What changes is how much gets withheld from that bigger paycheck.

How overtime pay works

Under the federal Fair Labor Standards Act (FLSA), non-exempt employees earn at least 1.5× their regular rate— "time and a half" — for hours worked beyond 40 in a workweek. So at $20/hour, your overtime rate is $30/hour. Some employers pay double time (2×) for holidays, but that's not federally required.

Why the myth exists

When you work overtime, that paycheck is bigger. Payroll systems calculate withholding by "annualizing" each check — they assume you'll earn that much everypay period. A bigger-than-usual check makes the system briefly withhold as if you earn more all year, so a larger slice comes out. That looks like a higher tax rate, but it's just temporary over-withholding.

When you file your return, your actual tax is based on your real annual income. Any extra that was withheld comes back as part of your refund.

What about tax brackets?

Tax brackets are marginal — only the dollars that fall into a higher bracket are taxed at that higher rate, never your whole income. If overtime pushes part of your income into the next bracket, only that portion is taxed more. You always keep more by earning more; overtime never leaves you with less take-home.

Calculate your overtime

See your time-and-a-half rate and total weekly pay with the overtime calculator, then check your take-home pay after taxes by state. For the bracket details, see how paycheck taxes work.