Overtime tax rate
There is no overtime tax rate. Overtime is ordinary wages and falls in the same brackets as the rest of your pay.
Why the paycheck looks wrong anyway
Withholding tables work by annualizing. Payroll takes the pay for this period, assumes every future period looks the same, works out the tax on that imagined year, and withholds a slice.
A week with 20 hours of overtime is therefore treated as if every week had 20 hours of overtime. That imagined salary reaches higher brackets than your real one, so the slice withheld is larger. Nothing has been taxed at a special rate. Payroll has simply guessed high for one week.
The guess corrects itself. Your return settles the year on the real total, and the excess comes back as refund.
What overtime actually costs in tax
On a $52,000 salary in Texas, filing single, the annual federal income tax is $4,060 and take-home is $43,962. Add $7,800 of overtime across the year and the tax becomes $4,996, with take-home at $50,229.
So $7,800 of overtime added $6,267 to take-home. The effective rate moved from 15.46% to 16.00%, which is the whole of the "overtime is taxed more" effect: a slightly higher average rate because more income sits in the next bracket, exactly as it would from a raise.
Brackets are marginal. Moving into a higher bracket taxes only the dollars above that threshold at the higher rate. Extra income never leaves you with less money than before.
The one rate that does exist
If overtime is paid as a separate check rather than with your regular wages, an employer may treat it as supplemental pay and withhold at the flat federal supplemental rate of 22%, or 37% above $1 million for the year. That is a withholding convention, not a tax rate, and it washes out on the return the same way.
Common questions
- Is overtime taxed at a higher rate than regular pay?
- No. It is ordinary income in the same brackets. A large overtime check can be over-withheld because withholding annualizes that pay period, and the excess returns when you file.
- Why was so much taken out of my overtime check?
- Payroll assumed every pay period would look like that one, calculated tax on that larger imagined year, and withheld accordingly. Your actual liability is based on your real annual total.
- Can overtime push me into a higher tax bracket and leave me worse off?
- No. Brackets apply only to the dollars above each threshold, so only the portion above the line is taxed at the higher rate. More gross pay always means more take-home.
- Does the federal overtime deduction change my withholding?
- Withholding and the deduction are separate. The deduction is settled on your return, so it shows up as a smaller bill or a bigger refund rather than as a change in your weekly check.