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Is Overtime Taxed More? How Overtime Pay Works

Updated July 20, 2026 · Figures reflect 2026 IRS, SSA, and state tax data — see our methodology.

Short answer: no — overtime is not taxed at a higher rate. Overtime dollars are ordinary wages, taxed under exactly the same federal brackets, FICA rates, and state rules as your regular pay. The myth survives because overtime-heavy paychecks often withhold a larger percentage, and because people confuse marginal brackets with their whole paycheck. This guide covers how overtime pay is actually calculated, why the withholding looks inflated, and a new federal deduction that (temporarily) makes the myth backwards — overtime is now often taxed less.

First, the pay math: what time-and-a-half means

Under the federal Fair Labor Standards Act (FLSA), non-exemptemployees must receive at least 1.5× their "regular rate of pay" for hours worked beyond 40 in a workweek:

• $20/hour → $30/hour overtime rate
• $25/hour → $37.50/hour
• $30/hour → $45/hour

A $20/hour worker doing 48 hours grosses 40 × $20 + 8 × $30 = $1,040 that week instead of $800. Some states go further: California requires daily overtime past 8 hours and double time past 12 hours in a day, and a few states (Alaska, Nevada, Colorado) also have daily thresholds. Run any rate through the overtime calculator to see weekly totals at 1.5× and 2×.

Who is exempt? Salaried employees in executive, administrative, professional, and some computer/sales roles above a salary threshold — they get no legal overtime no matter the hours. Job title alone does not decide this; duties and salary do, and misclassification is one of the most common wage violations.

Why the tax myth exists: withholding vs. tax

Payroll software withholds from each paycheck by annualizing it — it assumes this period's pay is what you earn every period. A big overtime week looks like a big salary, so the formula withholds at rates appropriate for that larger income. Result: the overtime-heavy check has a visibly higher withholding percentage, and it feels like overtime was taxed extra.

But your actual tax is settled annually on your return, where an occasional heavy week averages out. If the annualized withholding over-collected, the difference returns as a refund. The dollars themselves were never taxed at a special "overtime rate" — no such rate exists in the tax code.

The related fear — "working overtime will bump me into a higher bracket and I'll lose money" — misreads marginal brackets. Only the dollars above a bracket line are taxed at the higher rate. Extra hours always increase take-home pay; see how paycheck taxes work for the full bracket explanation.

A worked example

Maya earns $22/hour, paid weekly, single, in a 4% flat-tax state. Her normal 40-hour week grosses $880. This week she works 50 hours:

The withholding percentage rose about two points because the annualization formula scaled up — but Maya keeps an extra ≈ $240 for her ten overtime hours, and any over-withholding comes back at filing. Working the hours always paid.

The 2025–2028 twist: the "no tax on overtime" deduction

The 2025 tax law (OBBBA) added a temporary federal deduction for overtime: for tax years 2025 through 2028, workers can deduct the premium portionof FLSA overtime pay — the extra "half" in time-and-a-half — up to $12,500 per year ($25,000 married filing jointly), phasing out above $150,000 ($300,000) of income. Key facts:

• Only the premium counts. At $20/hour, the overtime rate is $30; the deductible piece is the $10 premium per overtime hour, not the whole $30.
• It is claimed on your tax return — paychecks still withhold normally, so stubs look unchanged and the benefit arrives at filing.
• FICA still applies in full — Social Security and Medicare are unaffected, and most states still tax overtime normally.
• It is temporary — current law sunsets it after 2028.

Net effect: for 2025–2028, a chunk of overtime premium income escapes federal income tax entirely — meaning overtime is currently taxed less than regular wages for most hourly workers, the exact opposite of the myth. (Our calculators estimate regular withholding and do not model this filing-time deduction.)

Is overtime worth it? A framework

• Marginal, not average. Each OT hour is taxed at your top rate — for a $22/hour worker, roughly 12–22% federal + 7.65% FICA + state. You keep roughly 70–75% of every overtime dollar, and more while the premium deduction lasts.
• Time-and-a-half usually beats the tax. A 50% pay premium taxed at ~25–30% still nets ~15–25% more per hour than your base rate.
• Watch benefit cliffs, not tax brackets. The real income traps are things like ACA subsidy thresholds or income-tested benefits, which can have genuine cliffs — brackets never are.

Frequently asked questions

What is the overtime tax rate?

There is none. Overtime is ordinary income taxed under normal 2026 brackets and 7.65% FICA — and through 2028, part of the premium is federally deductible for many workers.

Why was my overtime check withheld at a higher percentage?

Per-paycheck annualization. Payroll assumed the fat week was your year-round pay and withheld accordingly; the excess reconciles on your return.

Is double time taxed differently?

No — 2× pay is still ordinary wages. Check double-time earnings for any rate on the overtime calculator.

Does overtime affect Social Security?

It is Social Security wages like any other pay (until the annual $184,500 wage base), and it raises the earnings history your future benefit is computed from — a small silver lining to the FICA on it.

Estimate a full paycheck with overtime hours in the paycheck calculator, or see time-and-a-half rates for common wages like $20/hour, $25/hour, and $30/hour.