Does Overtime Get Taxed More?

It's one of the most common paycheck myths: "I picked up an overtime shift but taxes ate most of it, so it's not worth it." The short answer — overtime is not taxed at a higher rate. Here's what's actually happening.

The myth

The belief is that overtime hours are taxed under a special, higher "overtime tax." There is no such thing. Overtime pay is ordinary income, taxed at the same rates as the rest of your wages. What confuses people is the difference between your tax rate and your withholding.

Why the overtime check can look smaller per dollar

Payroll systems often calculate withholding by "annualizing" a paycheck — they look at this period's higher gross and estimate as if you earned that much every period all year. That can temporarily withhold more from a big overtime check. But withholding is just a prepayment of your taxes, not the final bill. If too much was withheld across the year, you get it back at tax time.

How marginal brackets really work

The U.S. uses marginal tax brackets, which means only the income that falls within a higher bracket is taxed at that bracket's rate — not your entire income. Crossing into a new bracket never reduces your take-home. An extra $300 of overtime might have its top dollars taxed at, say, 22% federally, but it's still 78 cents on the dollar before other withholdings — never a net loss.

What overtime actually nets you

Federal law generally requires overtime at 1.5× your regular rate for hours over 40 in a week (some states have daily overtime rules too). From that gross overtime, expect the usual deductions: 7.65% FICA, your marginal federal rate, and state tax. As a rough rule of thumb, many hourly workers keep somewhere around 70–80% of an overtime dollar — meaningfully more than zero, and the same proportion they keep on regular pay.

So is the extra shift worth it?

Financially, an overtime shift essentially always nets you more money than not working it — the "taxes ate it all" feeling comes from withholding optics, not reality. Whether it's worth your time is a personal call. But don't turn it down on the belief that taxes erase it; estimate the real take-home first.

General information, not tax advice. Overtime rules vary by state and employer; your withholding depends on your W-4. For specifics, see the U.S. Department of Labor or a tax professional.