Is Overtime Taxed More? How Overtime Pay Works

It’s one of the most common payroll myths: that overtime gets taxed at a higher rate, so it’s “not worth it.” The short answer is no — overtime is not taxed at a special rate. A dollar earned in overtime is taxed exactly like a dollar of regular pay. What confuses people is the difference between how much is withheld from that bigger check and how much tax you actually owe.

How overtime pay works

Under federal law, non-exempt employees earn at least time-and-a-half (1.5× their regular rate) for hours worked beyond 40 in a week. So if you earn $20 an hour, overtime hours pay $30. That’s a pay rate bump — it has nothing to do with the tax rate.

Why your overtime check looks over-taxed

Payroll systems calculate withholding by annualizing each paycheck — they assume you’ll earn that amount every pay period for the whole year. A week with lots of overtime makes that paycheck bigger, so the system briefly assumes a much higher annual salary and withholds at a higher rate for that check. You haven’t been taxed more; the system has simply over-estimated your withholding for that one period.

What overtime actually costs in tax

Overtime is taxed at your marginal rate — the rate on your next dollar of income. If you’re in the 22% bracket, overtime is taxed at 22% (plus FICA and any state tax), the same as a raise. The only time the rate changes is if the extra income pushes part of your earnings into a higher bracket — and even then, only the portion inside the new bracket is taxed at the higher rate. See how tax brackets actually work for why a raise (or overtime) can never leave you worse off overall.

So is overtime worth it?

Almost always, yes. You keep the same percentage of overtime pay as you keep of your regular pay — usually 65–80% after tax. The bigger withholding on a heavy-overtime check is temporary and reconciles at tax time. The real considerations are personal: your time and energy, not a phantom tax penalty.

See it on your rate

Our hourly wage calculator lets you set your hours per week — bump them above 40 to see how extra hours flow into your annual and monthly take-home pay. For the tax side, read effective vs marginal tax rate.