How Overtime Is Taxed in 2026

Overtime pay is taxed as ordinary income in 2026 — there is no special overtime tax rate. Federal income tax and FICA apply to overtime exactly as they do to regular wages. For example, a $30/hour Texas worker with 200 overtime hours keeps about $75 of every $100 of overtime earned.

There is no special overtime tax rate

The IRS taxes overtime the same way it taxes regular wages: as ordinary income under the 2026 federal brackets, which run from 10% to 37%. Working overtime does not move your existing income into a higher bracket — only the extra dollars themselves can cross into the next bracket, and only the amount above each threshold is taxed at the higher rate. According to the IRS (2026), a single filer's income is taxed at 22% only on taxable income above $50,400; everything below that keeps its lower rate. You can see the effect on a real paycheck with our overtime pay calculator.

Why your overtime paycheck looks over-taxed

The confusion comes from withholding, not tax law. Payroll systems annualize each paycheck: when one check is unusually large because of overtime, the system withholds as if you earned that much every pay period all year. The result is temporary over-withholding — money you get back as a refund when you file. Your actual tax for the year is set by your total income, not by how it was spread across paychecks.

FICA applies to every overtime dollar

Social Security and Medicare taxes (FICA) come out of overtime with no exceptions. In 2026, Social Security takes 6.2% of wages up to the $184,500 wage base (per the SSA) and Medicare takes 1.45% of all wages, plus an extra 0.9% above $200,000 for single filers. On a $45 time-and-a-half hour, FICA alone is about $3.44.

New for 2025–2028: the federal overtime deduction

The One Big Beautiful Bill Act created a temporary deduction — often called "no tax on overtime" — for tax years 2025 through 2028. Per IRS guidance (FS-2026-01), only the premium half of FLSA time-and-a-half qualifies: if you earn $30/hour and get $45/hour for overtime, only the $15 premium is deductible. The deduction is capped at $12,500 per return ($25,000 for joint filers) and shrinks by $100 for every $1,000 of modified AGI above $150,000 ($300,000 joint). It reduces federal income tax only — FICA still applies — and is claimed on Schedule 1-A whether or not you itemize. Estimate your own savings with our No Tax on Overtime Calculator.

A worked example

Take a single filer in Texas earning $30/hour ($62,400 per year) who works 200 overtime hours, adding $9,000 of time-and-a-half pay. Under 2026 rules, federal income tax and FICA take about $2,258 of that overtime, so the worker keeps roughly $6,742 — about 75 cents of each overtime dollar. Part of the overtime is taxed at 12% and part at 22%, because the extra income crosses a bracket threshold. The same worker's overtime premium ($3,000) also qualifies for the new deduction, worth about $660 back at filing. State income tax would lower the take-home further in most states — check yours with our state paycheck calculators.

How withholding on overtime is actually calculated

Most employers use the IRS percentage method: your pay for the period is multiplied out to an annual figure, the tax for that annual figure is computed, and one period's share is withheld. A week with 15 overtime hours can therefore be withheld as if you earn that amount all 52 weeks. Some employers instead pay overtime in a separate check as "supplemental wages," which are typically withheld at a flat 22% federal rate. Either way, the number on your pay stub is a prepayment estimate — the real bill is settled on your Form 1040, where over-withholding turns into a refund.

Three ways to keep more of your overtime

First, track your FLSA overtime hours. From 2026, W-2s report qualified overtime in a dedicated box, but keeping your own record helps you verify it and claim the full Schedule 1-A deduction you earned. Second, consider directing part of a heavy-overtime paycheck into a pre-tax 401(k) or HSA — contributions reduce federal (and usually state) taxable income at your highest marginal rate, exactly where overtime dollars land. Third, if big overtime checks are routinely over-withheld and you dislike waiting for a refund, you can file an updated W-4 with your employer to fine-tune withholding. None of these change what you legally owe — they change when and how much of your money sits with the IRS.

Do states tax overtime?

Most states with an income tax treat overtime as ordinary wages, and the federal overtime deduction does not automatically flow through to state returns. A handful of states have passed or proposed their own overtime exemptions, but unless your state has, expect normal state withholding on overtime. Nine states, including Texas and Florida, have no wage income tax at all.