"My overtime all went to tax" is one of the most common payroll complaints, and employers get asked about it on payday. The answer has three parts: how overtime is actually taxed, why the withholding on an overtime-heavy check looks high, and what the 2025–2028 overtime deduction does and doesn't change. Figures are from IRS Publication 15 (2026) and the IRS's overtime deduction guidance.
Is overtime taxed at a higher rate?
No. There is no separate overtime tax rate. Overtime is wages, so it carries the same Social Security and Medicare as regular pay, and it is added to the year's income for federal income tax at the same bracket rates. What can differ is how much is withheld from a particular paycheck.
| Tax | Employee | Employer | Same as regular pay? |
|---|---|---|---|
| Social Security | 6.2% up to $184,500 of wages | 6.2% | Yes |
| Medicare | 1.45% (plus 0.9% withheld on wages over $200,000) | 1.45% | Yes |
| Federal income tax | Withheld per Form W-4 | None | Same rates; withholding method can differ |
| Federal unemployment (FUTA) | None | Yes, on the first $7,000 | Yes |
| State income tax | Per state rules | None | Usually |
Why does my overtime check look taxed more?
Because withholding looks at one check at a time. The percentage method in IRS Publication 15-T annualizes the wages in the pay period: it multiplies them by the number of pay periods in the year and works out tax on that figure. A big overtime week therefore gets withheld as if every week of the year looked like it, which can reach into a higher bracket than your actual annual income will.
| 40-hour week | 50-hour week | |
|---|---|---|
| Gross pay | $800.00 | $1,100.00 (10 overtime hours at $30) |
| Treated for withholding as a yearly wage of | $41,600 | $57,200 |
| Social Security (6.2%) | $49.60 | $68.20 |
| Medicare (1.45%) | $11.60 | $15.95 |
| Federal income tax | Per W-4 and Pub. 15-T | Higher share, because the annualized wage is higher |
The second reason is supplemental wage withholding. IRS Publication 15 lists overtime pay among supplemental wages, though employers may treat it as regular wages instead. If an employer pays overtime separately or shows it separately, it may withhold a flat 22% federal income tax on it. For someone whose top bracket is lower, 22% is more than their overtime will finally cost them.
Either way, withholding is a prepayment. Your tax for the year is worked out on your return from your total income, and anything over-withheld comes back as a refund.
What the no tax on overtime deduction changes
For 2025 through 2028, eligible employees can deduct qualified overtime compensation on their federal return: up to $12,500 a year, or $25,000 on a joint return, reduced once modified adjusted gross income passes $150,000 ($300,000 joint). Only the premium the FLSA requires counts: the extra half in time and a half, not the whole overtime check.
- It is an income tax deduction claimed on Schedule 1-A of the employee's return.
- Social Security and Medicare still apply to all overtime. The IRS says overtime remains subject to those taxes and to withholding.
- Withholding only changes if the employee gives the employer a new Form W-4. Publication 15 says employers must use an updated W-4 if one is submitted, so the employee can get the benefit in each paycheck.
- From 2026, employers report qualified overtime in box 12 of Form W-2 with code TT.
In the example above, the 50-hour week has $100 of qualified overtime (10 hours × the $10 premium). The other $200 of overtime pay is straight time and taxed as usual. Our no tax on overtime post covers the deduction and the W-2 reporting in detail.
How to keep overtime withholding closer to the real tax
- Employees who regularly work overtime can update Form W-4. The 2026 form lets them include the expected overtime deduction as a deduction in Step 4(b); the IRS Tax Withholding Estimator accounts for it.
- Employers can choose to treat overtime as regular wages rather than supplemental wages, so it is withheld with the rest of the check.
- Show overtime hours and rate on their own pay stub line, so the employee can see what was paid before tax.
Where PayDocs fits
The free hourly paycheck calculator shows what one 2026 paycheck with overtime looks like after federal income tax withholding, Social Security, Medicare and supported state tax. It applies normal withholding and doesn't subtract the overtime deduction, which is how the IRS says paychecks work without a new W-4. The pay stub generator shows overtime on its own line; PayDocs works out federal income tax, Social Security, Medicare and supported state taxes for 2026 pay dates (see what we calculate).
This is general information, not tax advice. An employee's final tax depends on their whole return.
Questions
Is overtime taxed at a higher rate?
No. Overtime carries the same 6.2% Social Security, 1.45% Medicare and federal income tax rates as regular pay. Withholding on an overtime-heavy check can look higher because the check is annualized, or because some employers withhold a flat 22% on it.
Why does my overtime check look taxed more?
Withholding treats each check as if you earned that amount every pay period. A big overtime week looks like a higher annual wage and is withheld at a higher rate. Your return settles the actual tax, and over-withholding comes back as a refund.
Is overtime tax-free in 2026?
Not on the paycheck. Social Security and Medicare still apply. Eligible employees can deduct the FLSA overtime premium, up to $12,500 ($25,000 joint), on their federal return for 2025 through 2028.
Can my employer withhold 22% on overtime?
Yes, if it pays or shows the overtime separately and withheld income tax from your regular wages this year or last year. IRS Publication 15 lists overtime pay as a supplemental wage but lets employers treat it as regular wages instead.
Sources
- IRS: Publication 15 (2026), Employer's Tax Guide
- IRS: Publication 15-T (2026), Federal Income Tax Withholding Methods
- IRS: What to know about the No Tax on Overtime deduction
- U.S. Department of Labor: Fact Sheet #23, Overtime Pay Requirements of the FLSA
Sources checked October 7, 2026. This article explains how pay documents work; it is not tax or legal advice.
