The short answer is no — but overtime can push you into a higher bracket, and withholding on OT often looks inflated. Here’s what’s actually happening.
Overtime is not taxed at a special higher rate. It is taxed as ordinary income — the same progressive brackets that apply to all your wages. There is no “overtime tax rate.”
The confusion comes from two real phenomena: bracket creep (more income pushes some dollars into a higher bracket) and withholding methods (employers often over-withhold on overtime pay, which looks like a higher tax but is reconciled at filing time). Neither means overtime income is taxed differently as a category.
In 2026, there is also a new wrinkle: the One Big Beautiful Bill created a federal deduction for overtime premium pay of up to $12,500 per year. This actually makes overtime less taxed than regular income for eligible workers. More on that below.
Federal income tax uses progressive brackets. Each bracket applies only to the dollars that fall within its range — not to your entire income. When overtime pushes your total income higher, only the dollars above a bracket boundary are taxed at the higher rate.
Regular pay: $22 × 2,080 hrs = $45,760 gross. Tax bracket: almost entirely in the 12% bracket after the standard deduction.
Overtime pay: $33/hr × 200 hrs = $6,600. Total gross: $52,360.
After the $16,100 standard deduction, taxable income is $36,260. The first $12,400 is taxed at 10%, the remaining $23,860 at 12%. No dollar of the overtime crosses into the 22% bracket.
Effective federal tax rate on total income: about 11.5%. The overtime is taxed at the same 12% as the rest of the income in that bracket.
Regular pay: $35 × 2,080 hrs = $72,800. After standard deduction, taxable income is $56,700 — about $6,300 of which is in the 22% bracket.
Overtime: $52.50/hr × 300 hrs = $15,750. New total gross: $88,550. Taxable income: $72,450.
The additional $15,750 in gross pay is taxed at 22% (since it’s all above the 12%/22% boundary). The effective tax rate on that overtime is 22%.
But this is not an “overtime tax rate” — it is simply the marginal rate for that income range. A $15,750 raise would be taxed identically.
Even though overtime is not taxed at a higher rate, the withholding on overtime paychecks often looks inflated. There are two reasons:
Many employers calculate withholding by taking your current paycheck, multiplying it by the number of pay periods in a year, and looking up the tax on that annualized figure. During a week where you worked heavy overtime, this method assumes you will earn that same amount every week — implying a much higher annual salary and triggering a higher withholding rate.
For example, if your normal biweekly check is $1,800 but this pay period you earned $3,200 with overtime, the annualized method calculates withholding based on a hypothetical $83,200 annual salary ($3,200 × 26). This produces higher withholding than your actual marginal rate would justify. The excess comes back as a refund when you file.
Employers can alternatively withhold federal income tax from overtime (and bonuses, commissions, and other supplemental wages) at a flat 22% rate, as long as the payment is identified separately from regular wages. This 22% is not your actual tax rate — it is a withholding shortcut. If your real marginal rate is 12%, the 10 percentage points of over-withholding come back as a refund in April.
Under the One Big Beautiful Bill, signed into law in 2025, the premium portion of overtime pay is deductible from federal income tax for tax years 2026 through 2028.
What qualifies: The deductible amount is the premium — specifically, the extra pay beyond your regular hourly rate. For time-and-a-half, the premium is the extra half: if your regular rate is $20/hr and you earn $30/hr for OT, the premium is $10/hr × overtime hours.
Maximum deduction: $12,500 per year for single filers, $25,000 for married filing jointly.
Phase-out: Begins phasing out above $150,000 MAGI (single) or $300,000 (married), fully phased out at $275,000 (single) / $550,000 (married).
FICA still applies: The deduction reduces federal income tax only — Social Security and Medicare taxes still apply to all overtime pay including the premium.
Worker earns $25/hr regular rate, works 400 overtime hours at $37.50/hr (time-and-a-half). OT premium = $12.50/hr × 400 hrs = $5,000.
Without the deduction, taxable income would be $50,900. The $5,000 deduction saves about $600 in federal taxes (at 12% marginal rate). Workers in the 22% bracket save $1,100 per $5,000 of OT premium.
Use our Overtime Tax Calculator to see the exact deduction and after-tax value of your overtime hours based on your rate, hours, and filing status.
Yes — FICA taxes apply to all wages including overtime. Your employer withholds 6.2% for Social Security and 1.45% for Medicare on every dollar of overtime pay, the same as regular wages. The 2026 overtime premium deduction reduces federal income tax only; it does not affect FICA withholding.
One overtime-specific note: if you earn significant overtime and your annual wages approach the Social Security wage base ($184,500 in 2026), you may hit the cap earlier than usual. Once your year-to-date earnings cross $184,500, Social Security withholding stops for the rest of the year — which means later paychecks in the year take home slightly more.
See exactly how much of your overtime pay you keep in 2026, including the new premium deduction.
Overtime Tax Calculator →No. There is no special overtime tax rate. Overtime pay is taxed as ordinary income under the same progressive brackets as all wages. If overtime pushes your total annual income into a higher bracket, only the dollars above the bracket boundary are taxed at the higher rate — your regular wages are not retroactively taxed more.
Employers use one of two withholding methods for overtime: the annualized method (which extrapolates your current check to estimate a full-year income, often inflating the implied rate) or the 22% flat supplemental wage rate. Both frequently over-withhold. The excess is reconciled at filing time and returned as a refund.
Under the One Big Beautiful Bill, the overtime premium — the extra pay above your regular rate for OT hours — is deductible from federal income tax up to $12,500 (single) or $25,000 (married). It phases out above $150,000/$300,000 MAGI and expires after 2028. FICA taxes still apply to all overtime pay.
The IRS allows employers to withhold federal income tax on supplemental wages (overtime, bonuses, commissions) at a flat 22% if paid separately from regular wages. This 22% is withholding only — your actual tax rate on overtime is your real marginal rate, and over-withheld amounts come back as a refund when you file.
Possibly. If your employer over-withheld on overtime using the annualized method or the 22% flat rate, and your actual marginal rate is lower, you will have excess withholding that becomes a refund when you file. Whether you actually get a refund depends on your total tax situation across all income for the year.
Yes. FICA taxes (6.2% Social Security, 1.45% Medicare) apply to all overtime pay including the premium portion. The 2026 overtime premium deduction reduces federal income tax only, not FICA. Social Security withholding stops once year-to-date wages reach $184,500, including overtime.
Overtime pay is added to regular wages for the period. Your total wages are then taxed under the same progressive federal brackets as all ordinary income. No separate calculation for overtime exists. The 2026 deduction is calculated specifically on the premium portion: (overtime rate − regular rate) × overtime hours worked.