How Much Do You Get Taxed for Overtime?
Uncover the real financial impact of working extra hours. Understand how additional earnings are truly taxed, dispelling common misconceptions about your pay.
Overtime pay is additional compensation employees receive for working beyond standard hours in a workweek. Federal law, specifically the Fair Labor Standards Act (FLSA), mandates that non-exempt employees receive overtime pay at a rate of at least 1.5 times their regular pay for hours worked over 40 in a single workweek. Overtime earnings are considered part of an individual’s taxable income. There isn’t a separate “overtime tax” that applies to these earnings; instead, they are taxed similarly to regular wages.
Federal Income Tax on Overtime
Overtime pay is added to an individual’s regular wages, increasing total taxable income. This combined income is subject to the U.S. federal progressive income tax system. In this system, income is taxed at increasing rates as total income rises. The federal income tax system has multiple tax brackets with rates ranging from 10% to 37% for the 2025 tax year.
When overtime income pushes an individual into a higher tax bracket, only the portion of income within that higher bracket is taxed at the increased marginal rate. While overall tax liability might increase due to higher earnings, your entire income is not suddenly taxed at the highest marginal rate. Initial portions of income are still taxed at the lower rates of preceding brackets.
Beyond federal income tax, overtime earnings are also subject to Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare. For 2025, the Social Security tax rate is 6.2% for employees, applied to wages up to $176,100. The Medicare tax rate is 1.45% for employees, with no wage base limit, so all covered wages, including overtime, are subject to it. An additional Medicare tax of 0.9% applies to wages exceeding $200,000 in a calendar year, regardless of filing status.
Understanding Overtime Withholding
The perception that overtime is “taxed at a higher rate” often stems from how employers withhold taxes from supplemental wages, including overtime pay, bonuses, and commissions. The amount withheld from a paycheck estimates your eventual tax liability, not the final tax rate. The Internal Revenue Service (IRS) provides employers with two primary methods for withholding federal income tax from supplemental wages: the percentage method and the aggregate method.
The percentage method, or flat rate method, applies to supplemental wages up to $1 million annually, with a flat withholding rate of 22% for 2025. If supplemental wages exceed $1 million, the excess is subject to a mandatory 37% flat withholding rate. This method often leads to a higher immediate withholding than the employee’s actual marginal tax rate, creating the impression of a higher tax on overtime.
The aggregate method involves combining supplemental wages with an employee’s regular wages. The employer calculates income tax withholding on this total as if it were a single payment, using the employee’s Form W-4 and applicable tax tables. Tax already withheld from regular wages is subtracted, and the remainder is withheld from supplemental pay. While this method can be more precise in aligning withholding with actual tax liability, it is more complex for employers to calculate. Employees can adjust their Form W-4 to better align withholding with expected tax liability, especially if they consistently work overtime, to reduce over-withholding throughout the year.
State and Local Taxes on Overtime
Similar to federal taxes, overtime pay is subject to state and local income taxes. Most states and some local governments consider overtime earnings ordinary income. These earnings are added to regular wages and taxed according to specific state and local tax laws.
State income tax rates and rules vary across the United States. Some states do not impose income tax, while others have flat tax rates that apply uniformly to all income levels. Many states utilize a progressive income tax structure, similar to the federal system, taxing higher income levels at higher rates. Consult specific tax regulations for your state and locality to understand how overtime pay will be treated.