Updated June 15, 2026 · 5 min read
Overtime pay is not taxed at a higher rate. It's ordinary income, taxed at the same brackets as the rest of your wages. What makes an overtime paycheck look heavily taxed is simple: a bigger gross check means more dollars withheld for that period. New for 2025–2028, the One Big Beautiful Bill Act added a federal deduction for the premium ('half') portion of overtime — up to $12,500 ($25,000 if married filing jointly) — which you claim when you file.
Payroll withholding is calculated by annualizing each paycheck — your employer estimates what you'd owe if every check were that size. A week with heavy overtime makes that paycheck larger, so the system withholds as if you earn that much all year. The result: a higher percentage held back on the big check.
But your actual tax is based on your real annual income, not a single inflated week. If overtime was a one-off, the extra withholding evens out — and often comes back as a refund — at tax time.
Overtime wages are subject to the same withholding as regular pay:
The One Big Beautiful Bill Act created a temporary federal deduction for qualified overtime, in effect for tax years 2025 through 2028. The key details:
If you work regular overtime, the new deduction means your true tax bill may be lower than what's being withheld. The IRS lets you account for an expected overtime deduction on Form W-4 (Step 4b, Deductions Worksheet) to reduce withholding during the year instead of waiting for a refund.
No. Overtime is ordinary income taxed at your normal brackets. It only looks over-taxed because a larger paycheck triggers more withholding for that pay period, which evens out when you file.
Not entirely. The "No Tax on Overtime" rule (2025–2028) is a federal deduction of up to $12,500 ($25,000 joint) on the premium portion of FLSA overtime. You still have tax withheld from each check and still owe Social Security, Medicare, and usually state tax — but you can deduct the qualifying premium when you file.
Up to $12,500 per year ($25,000 for married filing jointly), and only the premium ('half' of time-and-a-half) portion. The deduction phases out above $150,000 of modified AGI ($300,000 joint) and applies to federal income tax only.
Withholding annualizes each paycheck, so a big overtime week is taxed as if you earned that much every week. Your actual tax is based on your real annual income, so excess withholding typically returns as a refund.