By Mudassir Khan
Short answer: no. Overtime is taxed at exactly the same rates as your regular wages. The bigger bite you see on an overtime paycheck is almost always withholding, not tax, and the difference matters.
Rules verified November 2026 · Sources: IRS, U.S. Department of Labor
Overtime is taxed at the same rates as your regular pay, never a higher special rate. The surprise on a big overtime paycheck is withholding, not tax: payroll software can withhold more that week, and supplemental wages face flat 22% withholding. Your actual tax follows your marginal bracket at filing, and the §225 deduction now trims the premium portion further.
There is no special overtime tax rate in the tax code. Overtime pay is ordinary wage income, and each dollar of it is taxed at your marginal rate, the rate on your last dollar of income, exactly like a dollar of regular pay. If you are in the 22% bracket, $1,000 of overtime pay produces $220 of federal income tax, the same $220 that $1,000 of regular pay produces.
Overtime can move your total income into a higher bracket, but only the dollars above the bracket line are taxed at the higher rate. Nothing about the overtime dollars themselves is penalized. Turning down overtime "because taxes will eat it" leaves money on the table: at a 22% marginal rate you keep 78 cents of every overtime dollar before payroll taxes.
Two payroll mechanics create the illusion of a higher overtime tax:
The test is simple: compare your tax return, not your pay stub. If too much was withheld during the year, it returns to you. Withholding is a prepayment estimate, not the tax itself.
A worker in the 22% bracket earns $30/hour and works one 10 hour overtime week.
| Item | Math | Amount |
|---|---|---|
| Overtime pay (10 hrs × $45) | 10 × $45 | $450 |
| Federal income tax at 22% | $450 × 22% | $99 |
| Same $450 as regular pay, tax at 22% | $450 × 22% | $99 |
| Withholding if paid as supplemental wages | $450 × 22% | $99 |
| §225 deduction on the $150 premium | $150 × 22% | $33 saved |
The tax is identical for overtime and regular pay. The last row is the real 2025 to 2028 difference: the premium half is deductible from federal taxable income, so the effective tax on the overtime hour falls below the tax on a regular hour.
For tax years 2025 through 2028, the federal no tax on overtime deduction removes the premium half of FLSA overtime from your federal taxable income. That slice is effectively taxed at 0% for federal income tax purposes, which is a genuine, if partial, tax break on overtime that regular pay does not get. It does not change withholding during the year, and it does not touch Social Security or Medicare taxes, which apply to every overtime dollar in full.
Withholding rules follow IRS guidance on supplemental wages and the Working Families Tax Cuts provisions. The deduction rules follow IRS Fact Sheet FS-2026-13 (August 2026).
No. Overtime is ordinary income taxed at the same federal rates as regular wages. There is no special higher overtime tax rate.
That is withholding, not tax. Annualized payroll math or flat 22% supplemental withholding can over withhold in the moment; the excess comes back at filing.
Employers may withhold federal income tax on separately paid supplemental wages, which can include overtime, at a flat 22%. Your actual tax is still set by your marginal bracket.
Only your total income matters, and only dollars above a bracket line face the higher rate. Overtime itself carries no penalty rate.
For 2025 through 2028, the §225 deduction removes the premium half of FLSA overtime from federal taxable income. The rest is taxed normally, and FICA still applies to all of it.
Almost never for tax reasons alone. You keep most of every overtime dollar, and the §225 deduction improves the premium portion through 2028.
See what the deduction is actually worth with the no tax on overtime calculator, or read the phase out guide if your income is near the thresholds.