The short answer: overtime is taxed as ordinary income, at the same brackets as your regular pay — not at a special higher rate. Here’s why your overtime check can still look smaller, and what the new “No Tax on Overtime” rule changes.
This is the biggest myth about overtime. The extra pay from time and a half is added to your wages and taxed at your normal marginal tax brackets — exactly like regular income. There is no separate, higher “overtime tax rate.”
When a paycheck is unusually large, payroll software often calculates withholding as if every check that year would be that big — a higher annualized estimate — so it withholds more federal income tax from that one check. You haven’t paid a higher tax rate; you’ve simply pre-paid more. It reconciles when you file, and any excess comes back as a refund.
The One Big Beautiful Bill Act created a temporary federal deduction for overtime, in effect for tax years 2025 through 2028. The key details:
So “no tax on overtime” is real but narrower than the headline: it’s a capped, income-limited deduction on the premium portion, for federal income tax, filed on your return.
Say you earn $30/hour and work 100 overtime hours in a year. Time and a half is $45/hour, so the premium (the extra $15/hour above your $30 base) totals $1,500. That $1,500 is the portion the OBBBA deduction targets — potentially removing it from your federal taxable income (subject to the cap and phase-out). The base-rate portion of those hours is still taxed normally, and FICA applies to all of it.
No. Overtime is taxed as ordinary income at your normal brackets. A large overtime check may have more tax withheld from it, but that is a withholding estimate, not a higher tax rate — it reconciles when you file.
Not entirely. The 2025–2028 “No Tax on Overtime” deduction lets you deduct the premium (half-time) portion of FLSA overtime from federal income tax, up to $12,500 ($25,000 joint), phasing out above $150,000 MAGI. FICA and often state tax still apply.
No. It’s claimed on your tax return, not through payroll withholding, so your take-home per check during the year is unchanged; the benefit shows up at filing.
Yes. FICA (6.2% Social Security + 1.45% Medicare) applies to overtime just like regular wages, and the new deduction does not change that.
Time and a half calculator · Overtime rules by state · What is FICA tax · Hourly calculator