Is Working Overtime Really Worth It After Taxes?

Working overtime is almost always worth it after taxes. The federal income tax takes only a slice of each extra dollar, never all of it, and from 2025 through 2028 a new federal deduction lets most workers write off up to $12,500 of their overtime premium pay. The real question isn’t whether overtime pays — it’s how much of each extra hour lands in your pocket once withholding, FICA, state tax, and the new deduction are all accounted for.

The Bracket Myth

The most common reason people turn down overtime is the belief that extra hours can “push them into a higher bracket” and leave them worse off. That isn’t how federal income tax works. The system taxes income in layers. Each bracket’s rate applies only to the dollars that fall inside its range, not to everything you earned that year.

Say your taxable income as a single filer is $104,000 in 2026, which puts you in the 22% bracket (which runs from $50,401 to $105,700).¹ You pick up $5,000 of overtime. The first $1,700 of that overtime is still taxed at 22%. Only the remaining $3,300 crosses into the 24% bracket. Every dollar you earned before the overtime stays taxed at the lower rates it was always taxed at.

Even at the top of the schedule, the highest federal rate is 37%, which means the most the federal government can take from any additional dollar is 37 cents. A worker in the 12% bracket keeps 88 cents of every overtime dollar before other taxes. Someone in the 22% bracket keeps 78. You cannot lose money by earning more.

What You Actually Keep Per Overtime Dollar

Federal income tax is one piece. To know your real take-home, you also have to count FICA and state tax.

FICA is Social Security plus Medicare, and it applies to every dollar of wages, overtime included. Social Security is 6.2% on wages up to $184,500 in 2026; if your regular pay already exceeds that cap, no Social Security tax comes out of your overtime.² Medicare is 1.45% on all wages, with an extra 0.9% kicking in on income above $200,000. For most workers, combined FICA on overtime is 7.65%. There is no bracket system and no deduction that reduces it.

State and local taxes vary widely. Nine states have no individual income tax at all. Others run progressive brackets with top rates from roughly 2% to over 13%, and some use a flat rate. Many cities and counties add 1% to 3% on top. All of it is withheld from each check and reconciled when you file.

Here’s a worked example for 2026. A single filer with $80,000 in taxable income earns $45 per hour in overtime. Their federal marginal rate is 22%, their state uses a 5% flat tax, and they haven’t hit the Social Security wage base:

Combined marginal rate: 22% federal + 5% state + 7.65% FICA = 34.65%
Tax per overtime hour: $45 × 0.3465 = $15.59
Net take-home per hour: $45 − $15.59 = $29.41

That’s about 65 cents of every overtime dollar, before the new deduction. With the deduction factored in, as shown below, the number climbs higher.

The 2025 Through 2028 Overtime Deduction

The One, Big, Beautiful Bill Act created a federal income tax deduction specifically for overtime pay, in effect for tax years 2025 through 2028. For most workers who put in extra hours, it is the single biggest change to overtime taxation in decades.

The deduction covers what the IRS calls “qualified overtime compensation” — the premium portion of time-and-a-half pay, not the full overtime wage. If your regular rate is $30 an hour and your overtime rate is $45, the deductible amount is the extra $15 per overtime hour.³

The caps and conditions:

Maximum annual deduction of $12,500 for single filers, $25,000 for married couples filing jointly.
Phases out when modified adjusted gross income exceeds $150,000 single or $300,000 joint.
Only overtime required under Section 7 of the Fair Labor Standards Act and reported on your W-2 or 1099 qualifies. Voluntary extra hours paid at straight time don’t count.³
Available whether you itemize or take the standard deduction.⁴
It’s an income tax deduction only. Your overtime pay is still subject to Social Security and Medicare taxes.

Go back to the earlier example. At a $15 deductible premium per overtime hour and a 22% federal rate, the deduction saves roughly $3.30 per overtime hour, pushing effective take-home from about $29.41 to roughly $32.71. Exact savings depend on how many overtime hours you work and whether you hit the $12,500 cap.

Why Your Overtime Check Looks So Small

Most of the panic about overtime taxes isn’t about what you actually owe. It’s about what gets withheld. Employers use simplified formulas on supplemental wages like overtime and bonuses, and those formulas tend to pull more than you’ll ultimately pay.

Two methods are common. The percentage method applies a flat 22% federal withholding to the overtime payment regardless of your W-4 or your real bracket. For supplemental wages above $1 million in a calendar year, the flat rate becomes 37%.⁵ The aggregate method lumps the overtime in with your regular pay, then annualizes that larger figure as if you’ll earn it every pay period for the rest of the year, producing withholding based on a much higher projected income than you actually have.

Either way, the overwithholding is temporary. When you file Form 1040, the IRS calculates your actual tax based on your real annual income and deductions.⁶ Everything withheld during the year is credited against that bill, and anything extra comes back as a refund. The refund isn’t a bonus. It’s your own money, returned after sitting with the government for months.

Keeping More In Each Paycheck

If you regularly work overtime and don’t want to wait for a refund, you can adjust Form W-4 to lower withholding. The IRS says workers can account for the new overtime deduction by filling out the Step 4(b) Deductions Worksheet and entering the result on their W-4.⁷ Your employer’s payroll system will then withhold less from each check.

Be conservative. If you overestimate the deduction and too little is withheld, you can owe at filing time along with an underpayment penalty. Estimate expected overtime on the low side, calculate the deduction, and recheck withholding at the start of each year. The IRS Tax Withholding Estimator does not yet account for the overtime deduction, so for now the paper worksheet or a tax professional is the route.⁷

When Extra Income Can Actually Cost You

Overtime is always a net gain on taxes alone. But higher income can trip indirect costs through phased-out credits and benefits, and these can quietly outweigh the extra wages for workers near certain thresholds.

Earned Income Tax Credit

The EITC phases out as income rises. For tax year 2025, a single filer with one child loses the credit entirely at $50,434 in adjusted gross income; with no children, the cutoff is $19,104.⁸ If you’re close to those limits, overtime earnings can shrink the credit faster than the straight marginal tax rate suggests. The effective rate on that overtime includes the lost credit, not just the taxes paid.

ACA Premium Tax Credits

If you buy health insurance through the marketplace and receive premium tax credits, overtime income can raise your share of premiums. From 2021 through 2025, there was no upper income limit on eligibility.⁹ For tax year 2026, that expanded eligibility expires and the earlier rule returns: households above 400% of the federal poverty line get no credit at all.¹⁰ This is a cliff, not a slope. A small amount of overtime that pushes you over 400% can wipe out a subsidy worth thousands. If you’re near that line, run the numbers before taking the shifts.

Roth IRA Eligibility

Overtime can also push you out of direct Roth IRA contributions. For 2026, eligibility phases out between $153,000 and $168,000 MAGI for single filers and between $242,000 and $252,000 for married couples filing jointly.¹¹ Workers near these thresholds can route overtime earnings into pre-tax 401(k) contributions, which lowers MAGI and can preserve Roth eligibility.

The Costs That Aren’t Taxes

Taxes aren’t the only thing that eats overtime. Extra hours often come with real out-of-pocket costs that reduce what the overtime is actually worth. Additional childcare is often the largest, with annual costs ranging from roughly $6,000 to over $28,000 depending on a child’s age and location; even a few paid hours a week add up. Commuting costs like fuel, tolls, and parking also chip away at the gain. None of this changes your tax bill, but all of it changes whether the hours pay off in practice. Subtract these expenses from your after-tax hourly rate before you commit to a heavier schedule, and you’ll have the honest number.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
2
Social Security Administration. Contribution and Benefit Base
3
Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
4
Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
5
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages
6
Internal Revenue Service. Instructions for Form 1040 – Section: Line 16
7
Internal Revenue Service. How to Update Withholding to Account for Tax Law Changes for 2025
8
Internal Revenue Service. Earned Income and Earned Income Tax Credit (EITC) Tables
9
Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit
10
Internal Revenue Service. Eligibility for the Premium Tax Credit – Section: Income Criteria
11
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500