How Is Overtime Pay Taxed?

Many workers notice that overtime checks seem to get hit harder by taxes than regular paychecks. There's a real explanation for this — but it's not that overtime is taxed at a higher special rate. Here's what's actually happening.

Is Overtime Taxed Differently?

No. Overtime pay is taxed at exactly the same rates as your regular wages. Federal income tax, Social Security, Medicare, and state income taxes all apply the same way. There is no special "overtime tax rate."

Why It Looks Like Overtime Gets Taxed More

The confusion comes from how employers calculate withholding. When you work overtime, your employer sees a higher-than-normal check and calculates withholding as if you earned that amount every paycheck for the full year — then taxes that projected annual income at the appropriate bracket rate.

If you normally earn $2,500 per paycheck but earn $3,500 with overtime, your employer might calculate withholding based on a projected $91,000 annual salary (3,500 × 26), not your actual $65,000 base. This pushes the withholding into a slightly higher bracket — even though your actual annual income is much lower.

The Math on an Overtime Check

Say you earn $25/hour and worked 50 hours in a week (40 regular + 10 overtime at 1.5×):

• Regular pay: 40 × $25 = $1,000
• Overtime pay: 10 × $37.50 = $375
• Gross pay: $1,375

Taxes apply to the entire $1,375 at the normal withholding rates. No separate "overtime tax" line exists.

What About Bonuses and Supplemental Wages?

Overtime is treated differently from bonuses. While overtime is part of your regular paycheck, supplemental wages (bonuses, commissions, severance) are sometimes withheld at a flat 22% federal rate, regardless of your actual bracket. This is a separate withholding rule and doesn't apply to standard overtime.

How to Reduce Withholding on Overtime

If you frequently work overtime and find yourself consistently getting large refunds, you can adjust your W-4 to account for it — either by updating your withholding allowances or using the IRS withholding calculator to calibrate more precisely.