Overtime is taxed at your regular marginal federal income tax rate, which for most workers means 12%, 22%, or 24%, plus 7.65% in FICA payroll taxes. There is no separate, higher tax rate for overtime hours. The reason an overtime paycheck often looks like it lost 30% or more to taxes is withholding, not tax liability, and any excess comes back when you file. A new federal deduction in effect from 2025 through 2028 can also shelter part of the overtime premium from income tax entirely.
The Marginal Rate That Actually Applies
Federal income tax is progressive. Overtime pay doesn’t get its own bracket. It stacks on top of your other wages for the year, and the rate that applies is whatever bracket your total taxable income reaches.
For 2026, single filers pay:1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
- 10% up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% over $640,600
These brackets apply to taxable income, meaning gross wages minus the standard deduction ($16,100 single, $32,200 married filing jointly for 2026) and any other above-the-line deductions.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
A worked example. A single filer earns $55,000 in regular wages. After the standard deduction, taxable income is $38,900, sitting in the 12% bracket. Add $8,000 of overtime and taxable income climbs to $46,900, still in the 12% bracket. Federal income tax on that overtime is about $960, or 12%. If overtime pushes a portion of your income across a bracket line, only the dollars above the line pay the higher rate. Overtime never raises the rate on wages you already earned.
Why Your Overtime Paycheck Looks Taxed Much Higher
Withholding is an estimate. Tax liability is the real number. The IRS classifies overtime as “supplemental wages,” the same bucket as bonuses and commissions, and employers have two ways to withhold on it.2Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The Flat 22% Method
When overtime is identified separately from regular pay, the employer can withhold a flat 22% for federal income tax. That rate ignores your W-4 and your filing status. For middle-income earners it’s often close to the actual marginal rate, so the check looks reasonable.2Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The Aggregate Method
Many payroll systems instead combine overtime with your regular wages for the pay period and calculate withholding as if that combined amount were your normal paycheck every period. If you usually earn $2,000 biweekly but a paycheck comes in at $3,200 because of overtime, the system treats you as if you earned $83,200 annually rather than $52,000. That inflated projection pushes the calculation into higher brackets and pulls extra money from that check. The money isn’t lost. It sits with the IRS and comes back as a refund after you file.
FICA Adds Another 7.65%
Federal income tax is only half the story on an overtime stub. FICA payroll taxes also come out, and the new overtime deduction (below) doesn’t reduce them.
- Social Security: 6.2% on wages up to $184,500 in 2026. Above that, this portion stops.3Social Security Administration. Contribution and Benefit Base
- Medicare: 1.45% on all wages, no cap.4Social Security Administration. Social Security and Medicare Tax Rates
- Additional Medicare Tax: 0.9% on earnings above $200,000 (single) or $250,000 (married filing jointly). Consistent overtime can put workers over this line.5Internal Revenue Service. Topic No. 560, Additional Medicare Tax
Combine 22% flat federal withholding with 7.65% FICA and you’re already near 30% of an overtime paycheck before state tax touches it. That’s the number people notice, but the FICA piece is real and permanent while the income tax piece is only an estimate.
The Overtime Deduction That Lowers Your Effective Rate
The One, Big, Beautiful Bill Act created a federal income tax deduction for qualified overtime compensation, retroactive to January 1, 2025 and set to expire after December 31, 2028. The deduction covers only the premium portion of overtime pay, meaning the “extra half” in time-and-a-half. If your regular rate is $30 and you earn $45 per overtime hour, only the $15 premium is deductible, not the full $45.6Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
The cap is $12,500 per return, or $25,000 for married couples filing jointly. It phases out once modified adjusted gross income exceeds $150,000 (single) or $300,000 (joint). You can claim it whether or not you itemize.7Internal Revenue Service. Questions and Answers About the New Deduction for Qualified Overtime Compensation
Only workers entitled to overtime under the Fair Labor Standards Act qualify. Salaried employees who are exempt from FLSA overtime, independent contractors, and workers whose overtime comes only from a union contract or state law don’t. You must include your Social Security number on your return, and married taxpayers have to file jointly. Starting with the 2026 tax year, employers must report qualified overtime compensation separately on your W-2.7Internal Revenue Service. Questions and Answers About the New Deduction for Qualified Overtime Compensation
Two limits to keep in mind. The deduction reduces federal income tax only. Social Security and Medicare still apply to every overtime dollar. And because the cap is $12,500, workers with heavy overtime shelter part of the premium and pay their normal marginal rate on the rest.
State Taxes on Overtime
Most states with an income tax treat overtime the same way federal law does, and many state payroll systems use the same aggregate method that inflates the check-time withholding. Flat supplemental withholding rates vary roughly from about 5% to nearly 12% across states, and several states have no income tax at all. Over-withholding at the state level corrects itself when you file the state return.
Fixing Withholding If Your Refund Or Bill Keeps Getting Bigger
If you regularly work overtime and always get a large refund, your employer is holding too much throughout the year. That’s your money sitting interest-free with the Treasury. Update your Form W-4 to change what your employer withholds.8Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
Three levers matter. Step 3 lets you claim anticipated tax credits, which directly reduces withholding each period. Step 4(b) lets you enter expected deductions beyond the standard deduction, lowering the income used in the withholding calculation. Step 4(c) lets you request a specific additional dollar amount per paycheck if you owe at filing time.9Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate
The IRS Tax Withholding Estimator at irs.gov is the most reliable tool for the actual numbers. Feed it your year-to-date earnings, expected overtime, and current withholding, and it produces specific W-4 entries. Running it once at the start of the year and again mid-year, when your overtime patterns are clearer, catches most problems before they compound. Cutting withholding too far can trigger an underpayment penalty, so if you’re making a big adjustment, aim to at least match last year’s total tax through withholding.10Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty