Expect roughly 22% of your overtime to come out for federal income tax, plus 6.2% for Social Security and 1.45% for Medicare, before any state or local tax is applied. That is what your employer withholds, not necessarily what you ultimately owe. A federal deduction that took effect in 2025 lets many hourly workers recover the income tax paid on the overtime premium when they file, and if your regular tax bracket sits below 22%, the flat withholding often produces a refund on its own. Here is how much tax is taken out of overtime under current federal rules, why the number on your paystub can look worse than the actual tax, and what you can do about it.
Federal Income Tax Withholding on Overtime
The IRS treats overtime as supplemental wages, the same category that covers bonuses, commissions, and severance. Employers have two ways to calculate the income tax withheld, and which one your employer uses drives how much disappears from the check.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The Flat 22% Method
When overtime is paid separately or shown as a distinct line item on your paystub, the employer can withhold a flat 22% for federal income tax. The rate applies regardless of your W-4 elections, filing status, or total earnings. It is simple and predictable. It also may not match your real tax rate: a worker in the 12% bracket ends up over-withheld, and a worker in the 32% bracket ends up under-withheld.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The Aggregate Method
If your employer lumps regular and overtime pay together on one check without separating them, the payroll system treats the whole check as a single regular paycheck. It calculates withholding using your W-4 and projects your annual income as if every future check will be the same size. A single 60-hour week gets treated as your new baseline, and the calculation pushes withholding into a higher bracket than your actual income warrants.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
This is usually why an overtime check looks smaller than expected. A worker who normally earns $1,000 a week and brings home $1,500 during an overtime week gets taxed as if annual income were $78,000 instead of $52,000. The tax rate itself has not changed; the withholding math has just overreacted. The excess comes back when you file.
Social Security and Medicare on Overtime
FICA taxes come out of every overtime dollar. Unlike federal income tax, there is no deduction or exemption that reduces them.
Social Security tax is 6.2% of gross wages up to the annual wage base, which is $184,500 for 2026. Once your combined regular and overtime wages cross that limit during the year, the 6.2% stops coming out of later checks.2Social Security Administration. Contribution and Benefit Base Medicare is 1.45% on all wages with no cap. If your annual wages exceed $200,000 ($250,000 for married couples filing jointly), an additional 0.9% Medicare surtax applies to earnings above the threshold. Employers begin withholding the surtax once wages pass $200,000 regardless of filing status, and the final amount is trued up when you file.3Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
On a $500 overtime payment before the Social Security cap, that works out to $31 for Social Security and $7.25 for Medicare, or $38.25 in FICA. Add federal income tax at the flat 22% rate and you are at $148.25 withheld before any state tax. The new overtime deduction can shrink the income tax portion at filing, but the $38.25 in FICA is permanent.
State and Local Tax
Nine states tax no wage income, so workers there see no state-level withholding on overtime at all. The other states either apply a flat supplemental rate or run overtime through their regular progressive tables; supplemental rates run roughly from 1.5% to over 11% depending on the state. Some cities and counties add local wage taxes on top, typically 1% to 4% of gross pay including overtime. Your paystub should itemize each deduction, and the published rates for your jurisdiction are the way to check the math.
The New Overtime Tax Deduction
The One, Big, Beautiful Bill Act added Section 225 to the Internal Revenue Code, creating a federal income tax deduction for “qualified overtime compensation” for tax years 2025 through 2028.4Office of the Law Revision Counsel. 26 USC 225: Qualified Overtime Compensation The deduction covers only the premium portion, the “half” in time-and-a-half. If you earn $30 an hour and are paid $45 for overtime, only the extra $15 per hour qualifies.
The annual deduction is capped at $12,500 per return, or $25,000 for married couples filing jointly. It phases out once modified adjusted gross income passes $150,000 ($300,000 joint), shrinking by $100 for every $1,000 above that. A single filer earning $275,000 or more gets nothing. Both itemizers and non-itemizers can take it, so you don’t have to give up the standard deduction to use it.5Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
Two limits are worth knowing before you count on the money. The deduction applies only to federal income tax, so your Social Security and Medicare withholding does not change. And only workers covered by and not exempt from the Fair Labor Standards Act qualify. Salaried employees classified as FLSA-exempt cannot use the deduction even if their employer voluntarily pays them extra for long hours; the IRS says such pay is not “qualified overtime compensation” regardless of state law or employer arrangement.6Internal Revenue Service. Guidance for Individual Taxpayers Who Received Qualified Tips or Qualified Overtime Compensation
Adjusting Withholding or Waiting for a Refund
Your employer withholds as if the Section 225 deduction does not exist. The tax break shows up when you file, as either a larger refund or a smaller balance due. Starting January 1, 2026, you can update Form W-4 using line 4(b) to include the expected deduction, which lowers withholding across the rest of your paychecks so you keep more during the year instead of waiting on a refund.7Internal Revenue Service. One, Big, Beautiful Bill: How to Take Advantage of No Tax on Tips and Overtime
If you expect $8,000 in overtime premiums for the year and your income is below the phase-out, entering $8,000 on line 4(b) reduces the wages subject to withholding by that amount over your remaining checks. The IRS Tax Withholding Estimator can help you set the number. Be conservative if your overtime hours swing month to month; setting the figure too high leaves you owing in April.8Internal Revenue Service. FAQs on the 2020 Form W-4
At filing, Form 1040 compares your total income to total withholding and settles the difference. Workers in the 10% or 12% bracket who had 22% withheld on overtime usually get a refund, and Section 225 makes that more likely still. Workers in the 24% bracket or higher can end up owing, because 22% flat withholding was too little; this is especially common for people whose employer paid bonuses, commissions, and overtime all at the 22% supplemental rate.
How Overtime Can Cost You Tax Credits
Extra overtime income can push you past the thresholds that reduce or eliminate credits you were counting on, and the lost credit can offset a real slice of the additional pay.
The Earned Income Tax Credit is the most sensitive. For 2026, a single filer with one child starts losing the EITC once earnings pass $23,890; for a married couple filing jointly with one child, the phase-out starts at $31,160. A few months of steady overtime can move a household past those points and cost several thousand dollars in lost credit.9Tax Foundation. 2026 Federal Income Tax Brackets and Rates The Child Tax Credit has more room, with phase-outs starting at $200,000 for most filers and $400,000 for married joint filers, so overtime rarely causes a problem there unless you’re already near the ceiling.
Advance premium tax credits for marketplace health insurance are another pressure point. The subsidy is based on the income you estimated at enrollment, and if overtime pushes actual income significantly higher, you have to repay the excess when you file. For tax years after 2025, there is no cap on that repayment: the full difference between what was advanced and what you actually qualify for is added to your bill or taken from your refund.10Internal Revenue Service. Questions and Answers on the Premium Tax Credit If you receive a marketplace subsidy and start working significant overtime, updating your income estimate with the marketplace during the year is cheaper than settling the whole gap in April.