How to Figure Out Overtime Tax: Withholding & Deduction

To calculate tax on overtime pay, start with the fact that overtime is taxed at the same federal income tax rates as your regular wages. What throws most people off is withholding: employers commonly pull federal income tax from overtime at a flat 22%, regardless of your actual bracket, and then apply 7.65% in Social Security and Medicare on top.¹ State income tax may also come out. For tax years 2025 through 2028, a new federal deduction lets many workers subtract the overtime premium portion of their pay when they file.²

The full calculation depends on which method your employer uses for federal withholding. The IRS classifies overtime as supplemental wages, but employers may treat it as regular wages instead.¹ Check a pay stub from an overtime week against one without. A clean 22% bite out of just the overtime line points to the supplemental (flat-rate) method. A higher-than-usual rate spread across the whole check points to the aggregate method.

The Flat-Rate Method

If your employer separates overtime and applies the flat rate, the math is simple. Multiply your overtime earnings by 0.22. On $800 in overtime, federal income tax withholding is $800 × 0.22 = $176.¹ The rate is the same whether your annual income lands in the 12% bracket or the 32% bracket, which is why this method routinely over-withholds for lower earners and under-withholds for higher ones. If your supplemental wages exceed $1 million in a single calendar year, the rate on the excess is 37%.³

The Aggregate Method

If your employer lumps overtime in with regular pay, the payroll system runs the combined amount through the standard IRS tax tables. To figure the piece attributable to your overtime:

Add overtime to regular pay for the period. Regular $2,000 + overtime $600 = $2,600.
Look up withholding on $2,600 using your W-4 filing status and pay frequency. Say it comes to $312.
Look up withholding on the $2,000 of regular pay alone. Say it comes to $220.
The difference, $92, is what got withheld on your overtime.

In this example, the effective withholding rate on the overtime is roughly 15.3%, well below the flat 22%. The aggregate method usually leaves more in your paycheck for lower-income workers and produces a smaller refund at filing. Your employer’s payroll software decides which method to run, so you cannot pick.

FICA on Every Overtime Dollar

Social Security and Medicare taxes come out of overtime the same way they come out of regular pay. The employee share is 6.2% for Social Security and 1.45% for Medicare, for a combined 7.65%.⁴ On $600 of overtime, that’s $37.20 for Social Security, $8.70 for Medicare, and $45.90 total.

Two thresholds change the FICA math for higher earners. Social Security tax applies only to the first $184,500 in wages for 2026; once you cross that, the 6.2% stops for the rest of the year.⁵ Medicare has no cap, and an additional 0.9% Medicare surtax kicks in on wages above $200,000 for single filers or $250,000 for married couples filing jointly, bringing the Medicare rate on the overage to 2.35%.⁶

State and Local Withholding

Most states with an income tax also withhold from overtime. Some apply a flat supplemental rate ranging from roughly 1% to nearly 12%. Others fold overtime into regular wages and use graduated state brackets. A handful of states have no income tax, so no state withholding comes off. Some cities and counties add a local income tax. Your pay stub or state tax agency site will show the specific rate you face.

A Sample Overtime Paycheck

Put it together with a concrete case: a single filer earning $55,000 a year picks up $800 in overtime on one paycheck, and the employer uses the flat-rate method.

Federal income tax at 22%: $176.00
Social Security at 6.2%: $49.60
Medicare at 1.45%: $11.60
State income tax in a mid-rate state: roughly $30 to $50
Net overtime pay: roughly $513 to $533

That works out to about 35% to 36% going to taxes, which feels steep. But at $55,000 in total income, most earnings fall in the 12% and 22% brackets for a 2026 single filer, so the 22% flat withholding is higher than your true rate on much of that money.³ The excess typically comes back as a refund.

The Qualified Overtime Deduction for 2025 Through 2028

A new federal deduction, effective for tax years 2025 through 2028, lets qualifying workers deduct the overtime premium portion of their pay. This is the extra “half” in time-and-a-half required by the Fair Labor Standards Act, not the full overtime rate.²

If your regular rate is $20 per hour and your overtime rate is $30 per hour, the deductible piece is the extra $10 per hour. Ten hours of overtime gives you $100 in qualified overtime compensation to deduct. The annual cap is $12,500 for single filers and $25,000 for joint filers.²

The deduction phases out at higher incomes. Above $150,000 modified adjusted gross income for single filers or $300,000 for joint filers, it shrinks by $100 for every $1,000 over. A single filer at $275,000 gets nothing. Both itemizers and non-itemizers qualify.

W-2s and 1099s don’t break out overtime separately, so you have to figure the qualifying amount yourself from payroll statements showing your regular hours, overtime hours, and pay rates. IRS Notice 2025-69 gives a shortcut: for standard time-and-a-half, divide your total overtime pay by 3 to get the deductible “half.”² Keep your pay stubs through the year, because reconstructing them from memory is not reliable.

One boundary worth naming: this deduction reduces your annual tax bill, not your per-paycheck withholding. Your overtime checks look the same during the year, and the benefit lands as a smaller balance due or larger refund in April.

Why Your Withholding Won’t Match Your Real Tax

Withholding is an estimate. Your actual tax depends on total annual income, filing status, deductions, and credits, none of which the payroll system fully sees on any single check. The flat 22% pulls too much from workers in the 12% bracket, and it pulls too little from workers in the 24% or 32% brackets. The aggregate method narrows the gap but still cannot factor in other income, deductions, or credits.

If overtime is a regular part of your pay and the withholding feels consistently off, use Step 4(c) of Form W-4 to request an extra dollar amount pulled from each paycheck.⁷ Adding $20 or $50 a period can prevent a balance due for higher-bracket workers. The IRS Tax Withholding Estimator at irs.gov will suggest a specific figure based on your most recent pay stubs and last year’s return.⁸

To avoid an underpayment penalty at filing, your withholding and estimated payments generally need to cover either 90% of your current-year tax or 100% of last year’s (110% if last year’s AGI topped $150,000).⁹ For workers with uneven overtime, matching last year’s total tax through the W-4 is usually the simpler path.

1
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
2
Internal Revenue Service. Treasury, IRS Provide Guidance for Individuals Who Received Tips or Overtime During Tax Year 2025
3
Internal Revenue Service. Publication 15 – Employer’s Tax Guide
4
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
5
Social Security Administration. Contribution and Benefit Base
6
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
7
Internal Revenue Service. Form W-4 – Employee’s Withholding Certificate
8
Internal Revenue Service. Tax Withholding Estimator
9
Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax