MYTH CHECK · UPDATED AUGUST 2026
Is overtime taxed at a higher rate? No.
Overtime is taxed at exactly the same federal rates as regular wages, and since 2025, part of it is actually taxed less. The "overtime gets eaten by taxes" feeling is real, but it's a withholding illusion. Here's the whole mechanism.
Why your OT check feels over-taxed.
Payroll software withholds from each check as if that check were your normal pay all year. Work 15 extra hours one week and the system briefly treats you like someone with a much bigger salary, so it withholds at that bigger salary's rate. Your actual tax for the year doesn't change accordingly; the extra withholding comes back at filing as refund.
EXAMPLE · $22/HR, BIWEEKLY, SINGLE
Normal check. 80 hrs
Gross $1,760 · federal withholding ≈ $121 (≈ 6.9%)
Big check. 80 + 24 OT hrs
Gross $2,552 · federal withholding ≈ $216 (≈ 8.5%)
The percentage jumped because withholding annualized one unusual check, not because overtime carries a special tax. Figures are illustrative 2026 percentage-method estimates.
Brackets are marginal, only the top dollars pay the top rate.
If overtime pushes your income "into the 22% bracket," only the dollars above the bracket line are taxed at 22%. Everything below keeps its 10% and 12% treatment. There is no income level where earning more leaves you with less after federal income tax.
Since 2025, overtime is the tax-favored income.
The One Big Beautiful Bill Act flipped this myth on its head: for 2025-2028, the premium portion of federal-law overtime (the extra "half" in time-and-a-half) is deductible from federal taxable income, up to $12,500, or $25,000 on a joint return, phasing out above $150,000/$300,000 MAGI. Regular wages get nothing similar. Two caveats keep it honest: Social Security and Medicare (7.65%) still apply to every overtime dollar, and most states still tax it.
What that's worth for your hours and rate: run the overtime deduction calculator - it shows the deduction, the phase-out, and the dollars saved at your actual bracket.
FAQ.
Why was my overtime check withheld at what looks like a higher rate?
Payroll systems annualize each paycheck: a check with 15 extra OT hours is withheld as if you earned that much every period all year, pushing more of that single check into higher withholding. Your actual tax is settled at filing, where the overstatement comes back as refund.
Can overtime push me into a higher tax bracket?
Only the dollars above the bracket line get taxed at the higher rate, never your whole income. Earning $1 into the 22% bracket costs you 22 cents on that $1, not 22% on everything. Turning down overtime to "stay in a lower bracket" always loses money.
Is the 22% taken from bonuses the same thing?
Related but different: employers may withhold a flat 22% on "supplemental wages" like bonuses (and sometimes separately-paid overtime). That is withholding, not your actual tax rate; it also settles at filing.
So is overtime now taxed LESS than regular pay?
For 2025-2028, effectively yes for many workers: the premium portion of federal overtime is deductible from federal taxable income (up to $12,500/$25,000, with income limits), while regular wages get no such deduction. FICA and most state taxes still apply to all of it.
See what your overtime is really worth.
Deduction + savings, computed the way the IRS form does it.
Open the calculatorEducational content, not tax advice. Withholding examples are estimates from IRS Publication 15-T (2026) percentage-method tables. Reviewed August 2026 by the NoTaxOnOvertimeCalc Team.