Is overtime taxed more? Here's what happens to your paycheck

You picked up extra shifts, worked 50 hours this week, and your paycheck still feels... smaller than it should. What gives?

If you've ever stared at your pay stub wondering why your overtime hours didn't translate to the bump in take-home pay you expected, you're not alone. It's one of the most common frustrations among hourly workers—and it's led to the widespread belief that overtime is taxed more than regular pay.

Here's the truth: Overtime isn't taxed at a higher rate. But your paycheck withholding can make it feel that way, and there are real reasons why your OT check looks different than you'd expect. 

We'll break down why your overtime feels lighter than it should, how the 2025 federal overtime deduction could affect you, and whether those extra hours are actually worth it after taxes.

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TL;DR — Is overtime taxed more than regular pay?

No. Overtime isn't taxed at a higher rate than your regular pay.

But your paycheck withholding might make it look that way. When you earn more in a single pay period, your employer withholds more taxes—which can make it seem like overtime gets hit harder.

The reality: All your income (regular and overtime) gets taxed the same way under federal tax law.

The 2025 overtime deduction: Could reduce your taxable income, but FICA, state, and local taxes still apply to every dollar you earn. Even with the new deduction, you'll still see withholding on your paychecks.

Why your check feels light: It's usually because of how withholding works—not some secret overtime tax. The good news? You might get some of that withholding back as a refund when you file your taxes.

Why your overtime check feels smaller (and what's actually happening)

You worked 10 extra hours. You know what you should have made. But when you check your bank account, the math doesn't add up.

Psst…time tracking software clears up payroll confusion in seconds. 

Why it feels wrong

Bigger paychecks trigger bigger withholding amounts. Not higher percentages—just bigger dollar amounts coming out. Here's why your overtime check feels lighter than it should:

Your employer uses a higher withholding rate for OT. The supplemental flat withholding rate is 22% federal. When you see $200 taken out instead of your usual $80, it looks like you're getting hammered.

Then everything else piles on. Add in FICA taxes (7.65%), state taxes, and any other deductions, and suddenly a big chunk of your overtime "disappears" before it hits your account.

Here's what that looks like in real life:

• Your regular $600 paycheck: $75 deducted (12.5%)
• Your overtime paycheck of $900: $180 deducted (20%)

It still feels bad—even though you're still taking home way more money than usual.

What's really happening

All your income gets taxed the same way—whether it's regular hours or overtime. The IRS doesn't have a special "overtime tax rate" that penalizes you for working extra shifts.

Your employer is just withholding more dollars because you earned more dollars. Here's why:

• That withholding is an estimate based on the assumption that you'll earn this higher amount every paycheck for the entire year
• It's not perfect, which is why many workers get refunds when they file their taxes
• Their employer withheld more than they actually owed

Think of withholding like your employer setting aside money for your future tax bill:

• When you earn more in one check, they set aside more
• But your actual tax rate? That gets calculated when you file your return based on your total income for the year

The best way to avoid surprises? Use payroll tools to track your hours and see your deductions update in real time before payday hits.

How the IRS actually taxes overtime pay

Overtime pay is just W-2 wages. The IRS treats it exactly like your regular pay.

Here's how it works

Your total income for the year equals your regular pay plus overtime pay plus bonuses plus tips plus any other earnings. The IRS uses that total to figure out which tax bracket you're in. Overtime doesn't get its own category or special rate.

The same federal income tax brackets apply to all your earnings. The same FICA taxes apply:

• Social Security: 6.2% (up to $176,100 in wages for 2025)
• Medicare: 1.45% (on all wages, no limit)

The withholding twist

Employers can choose between two withholding methods when you work overtime:

Aggregate method: Your employer treats your overtime check like a normal paycheck and withholds based on your W-4 and the standard tax tables.

Supplemental method: Your employer withholds a flat 22% on the overtime portion of your check. Many employers prefer this method because it's simpler—no complex calculations required.

Either way, your actual tax bill gets settled when you file your return. If your employer withheld too much during the year, you get it back as a refund. If they didn't withhold enough, you owe the difference.

The bottom line

You're not being taxed more on overtime. You're just seeing more withholding upfront. The taxes on overtime work are exactly the same as taxes on regular pay—it all goes into the same bucket when the IRS calculates what you actually owe.

Does overtime push you into a higher tax bracket?

Maybe. But it's not as scary as it sounds.

How tax brackets actually work

Tax brackets are marginal, not flat. This is the key thing most people misunderstand about taxes.

Only the income above each threshold gets taxed at the higher rate. Moving into a new bracket doesn't mean all your income suddenly gets taxed more. Your first dollars still get taxed at 10%, your next batch of dollars at 12%, and so on.

Real example

Let's say you're single and earn $44,000 in regular pay. You're sitting comfortably in the 12% tax bracket. Then you pick up overtime shifts and earn an extra $5,000, bringing your total income to $49,000.

Here's how it breaks down using 2025 tax brackets:

• Income from $0 to $11,925 gets taxed at 10%
• Income from $11,926 to $48,475 gets taxed at 12%
• Income from $48,476 to $49,000 gets taxed at 22%

The key: Only $525 of your overtime hits that 22% bracket. The other $4,475 of your OT stays at 12%.

You don't suddenly pay 22% on everything—just on the dollars above that threshold. This is what "marginal" means: each chunk of income gets its own rate.

The takeaway

You'll never take home less money because you worked more hours. Yes, you keep a smaller percentage of those extra dollars once you cross into a higher bracket. But you're still taking home more than you would have without the overtime.

Anyone who tells you "don't work overtime, it'll push you into a higher tax bracket and you'll lose money" doesn't understand how marginal tax rates work.

Will I have to pay taxes on overtime?

Yes. Always.

Overtime pay is never tax-free under normal circumstances. The government treats your overtime earnings exactly like any other income, which means taxes get deducted before the money hits your bank account.

Here's what gets taken out

Federal income tax based on your bracket and W-4 withholding elections

State income tax if your state has one (some states like Texas and Florida don't)

FICA taxes: 6.2% for Social Security and 1.45% for Medicare—these are non-negotiable for almost everyone

Any local taxes from your city or county, if applicable

The 2025 exception

New legislation might let you deduct some overtime income when you file your taxes, but that's a deduction, not an exemption. You'll still see withholding on your paycheck every time you work overtime. The difference happens later, when you file your return—you might owe less or get a bigger refund.

We'll cover exactly how this 2025 overtime deduction works in the next section.

When does no tax on overtime start? (2025 updates)

Big news for 2025: Proposed federal legislation could let you deduct overtime income from your taxable income—up to a point.

What the "Big Beautiful Paycheck Act" proposes

The bill includes an overtime deduction with specific limits:

Deduction cap: Up to $12,500 per year in overtime earnings could be deductible ($25,000 for married couples filing jointly)

Who qualifies: Hourly workers whose overtime is paid at time-and-a-half or more, as required by the Fair Labor Standards Act

What it doesn't cover: Bonuses, tips, salaried overtime, or any compensation that isn't specifically FLSA-qualified overtime

Income limits: The deduction phases out for individuals earning over $150,000 ($300,000 for joint filers)

What this actually means for you

Here's the important part: You'll still see taxes withheld from your paycheck when you work overtime. Nothing changes on payday.

But when you file your tax return, you can deduct that overtime income up to the cap. This lowers your taxable income, which means you might owe less or get a bigger refund when tax season rolls around.

It does not exempt you from FICA taxes—you're still paying Social Security and Medicare taxes on every overtime dollar.

When does it start?

The bill was signed into law on July 4, 2025, and applies to the 2025 tax year (the return you'll file in 2026). Check IRS.gov for the latest guidance on how to claim the deduction, or talk to a tax professional if you're not sure how it applies to your situation.

Important clarification

This isn't "no tax on overtime" the way some headlines make it sound. It's a deduction that reduces your taxable income. You're still paying payroll taxes, and you're still seeing withholding on every check. The benefit comes when you file your return and can reduce the amount of income the IRS taxes.

What actually comes out of your overtime paycheck

Let's make this real. Here's what three different workers see when they pick up overtime hours.

Example 1: Restaurant server (single filer)

• Base pay: $15/hour × 40 hours = $600
• Overtime: 10 hours × $22.50/hour = $225
• Gross pay: $825

Deductions:

• Federal withholding: ~$82
• FICA (7.65%): ~$63
• State tax: ~$25
• Take-home: ~$655

The math: She worked 25% more hours but only took home about 9% more after taxes. That's the reality of withholding on a bigger paycheck.

Example 2: Retail shift lead (married, filing jointly)

• Base pay: $18/hour × 40 hours = $720
• Overtime: 8 hours × $27/hour = $216
• Gross pay: $936

Deductions:

• Federal withholding: ~$65
• FICA (7.65%): ~$72
• State tax: ~$30
• Take-home: ~$769

The math: Because they file jointly, their withholding rate is lower—they keep more of their overtime than a single filer would.

Example 3: Healthcare worker (single, high earner)

• Base pay: $28/hour × 40 hours = $1,120
• Overtime: 12 hours × $42/hour = $504
• Gross pay: $1,624

Deductions:

• Federal withholding: ~$260
• FICA (7.65%): ~$124
• State tax: ~$65
• Take-home: ~$1,175

The math: Higher earners lose a bigger chunk to taxes because they're in higher brackets. But the 12 OT hours still added about $300 to their take-home—they're keeping roughly 60% of the overtime after all deductions.

Want to stop second-guessing your paycheck? Time tracking tools that calculate overtime and show deductions in real time mean you'll know exactly what's hitting your bank account before payday.

Is working overtime worth it after taxes?

Honest answer: It depends on your situation.

When overtime makes sense

You're paying off debt or saving for something specific. That extra $200 per paycheck adds up fast when you're working toward a goal.

You're in a lower tax bracket and keeping most of your OT pay. If you're in the 10% or 12% bracket, you're keeping roughly 75-80% of your overtime after all taxes—federal, FICA, and state combined.

You're hitting a short-term financial goal. Saving for a down payment, building an emergency fund, or covering an unexpected expense—overtime can help you get there faster.

The extra work won't burn you out. If you can handle the hours without sacrificing your health, sleep, or family time, the money is worth it.

When it might not be worth it

You're losing eligibility for tax credits. The Earned Income Tax Credit and Child Tax Credit both phase out as your income rises. In some cases, overtime can push you over the threshold and cost you more in lost credits than you gain in wages.

You're only netting 60-70% of those hours. If you're in a higher tax bracket and half your overtime disappears to taxes, the trade-off might not be worth the extra stress.

You're sacrificing health, sleep, or family time for marginal dollars. Burnout is real, and no amount of overtime pay can compensate for chronic exhaustion or damaged relationships.

You qualify for income-based benefits. Healthcare subsidies, housing assistance, and other benefits phase out with higher earnings. Check whether your overtime could disqualify you from programs that save you more money than the OT brings in.

Are bonuses taxed at 40%? (And how that relates to overtime)

No. This is a myth.

Bonuses are withheld at 22% federally, not taxed at 40%. But the confusion is understandable.

Why people think bonuses (and overtime) are taxed more

Employers withhold a flat 22% on supplemental income—bonuses, commissions, and overtime. Add in FICA (7.65%) and state taxes, and suddenly 30-35% of your bonus or overtime vanishes before you see it.

People look at their pay stub, see a third of their money gone, and think "I'm being taxed at 40%!" But that's withholding, not taxation.

The truth

Withholding doesn't equal your actual tax rate. Your real tax rate is based on your total annual income and gets calculated when you file your tax return.

If too much was withheld during the year, you get it back as a refund. If not enough was withheld, you owe the difference. Either way, the 22% withholding on your overtime or bonus is just an estimate—not your final tax bill.

How this applies to overtime

Overtime and bonuses are both treated as supplemental income for withholding purposes. Same 22% flat withholding applies in most cases. Same confusion about "why is so much being taken out?"

The fix: Understand that what's withheld now isn't necessarily what you owe later. When you file your taxes, the IRS looks at your total income for the year—not at individual paychecks—and calculates what you actually owe based on the tax brackets.

Stop guessing what's coming out of your paycheck

Here's the real problem: You shouldn't have to wonder whether that extra shift was worth it.

Homebase takes the mystery out of overtime pay. See your hours—regular and OT—update in real time. Know exactly what you're earning before payday hits. Track how deductions affect your take-home pay. Set overtime alerts so you're never surprised by a big tax withholding.

"Before Homebase I was manually tallying up my team's work hours and entering them into payroll, crossing my fingers I hadn't made any mistakes. Now our entire team logs in and out quickly and easily with the Homebase app, and all I have to do is send their hours to my payroll program with the click of a button." — Kathleen Smith, Founder, Smiling Tree Toys

Whether you're picking up extra shifts to hit a savings goal or just trying to cover rent, you deserve to know what you're actually taking home.

Try Homebase free and make every hour—and every dollar—count.

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FAQs — Quick answers to your overtime tax questions

Is overtime taxed more than regular pay?

No, overtime is taxed at the same rates as regular income. 

The difference is in withholding—your employer might withhold 22% upfront using the supplemental rate, but your actual tax rate depends on your total annual income. When you file your return, the IRS calculates what you owe based on all your earnings for the year.

When does no tax on overtime start?

The 2025 overtime deduction is now in effect for tax years 2025-2028. Workers can deduct up to $12,500 in qualifying overtime income ($25,000 for joint filers) when filing their tax return. 

You'll still see withholding on your paychecks—the deduction reduces your taxable income when you file, not on payday. The deduction applies only to the "half" portion of time-and-a-half pay.

Does overtime push me into a new tax bracket?

Maybe, but only income above the threshold gets taxed at the higher rate. Tax brackets are marginal—moving up a bracket doesn't increase tax on your entire income. 

For example, if the 22% bracket starts at $48,475 and you earn $49,000, only $525 gets taxed at 22%. The rest is taxed at lower rates. You'll never take home less money because you earned more.

Is working overtime worth it financially?

It depends on your situation. Overtime is usually worth it if you're keeping 70% or more of your pay after taxes and it's not affecting benefits. 

However, if overtime pushes you over income limits for the Earned Income Tax Credit, Child Tax Credit, or subsidies, you could lose more than you gain. Calculate how overtime affects your specific tax credits and benefits before committing to regular extra shifts.