What Happens to Overtime Pay After Taxes in 2026
Overtime pay is not taxed at a special "overtime rate." Default paycheck withholding treats overtime as ordinary wages subject to federal income-tax withholding, state withholding where applicable, and FICA. Separately, for tax years 2025 through 2028, qualified FLSA overtime premium compensation may be deductible for federal income tax at filing and can be modeled in the No Tax on Overtime deduction calculator.
Key Findings
- Overtime is ordinary income, not a separate tax class.
- Only the added dollars are taxed at the higher marginal rate.
- Payroll withholding can look heavy because it annualises the pay period.
- The federal qualified-overtime deduction is a filing-time income-tax deduction, not an automatic FICA or state-tax exclusion.
2025-2028 federal qualified overtime deduction
The new federal overtime deduction applies to qualified FLSA overtime premium compensation, generally the premium portion above the regular rate rather than the full time-and-a-half overtime paycheck. It is capped, phases out at higher MAGI levels, is unavailable to married filing separately taxpayers, and does not remove Social Security or Medicare tax.
Employees may be able to reflect expected qualified overtime on an updated 2026 Form W-4 Step 4(b), but that requires submitting the updated W-4. Without that change, the paycheck view below remains a default withholding estimate before any qualified-overtime deduction or W-4 Step 4(b) adjustment.
Example default withholding math
| Base rate | State | Additional gross | Federal | State | FICA | Net OT pay |
|---|---|---|---|---|---|---|
| $18 | TX | $2,700 | $324 | $0 | $207 | $2,169 |
| $18 | CA | $2,700 | $324 | $154 | $207 | $2,016 |
| $18 | NY | $2,700 | $324 | $160 | $207 | $2,009 |
| $25 | TX | $3,750 | $450 | $0 | $287 | $3,013 |
| $25 | CA | $3,750 | $450 | $296 | $287 | $2,717 |
| $25 | NY | $3,750 | $450 | $222 | $287 | $2,791 |
| $35 | TX | $5,250 | $1,155 | $0 | $402 | $3,693 |
| $35 | CA | $5,250 | $1,155 | $530 | $402 | $3,163 |
| $35 | NY | $5,250 | $1,155 | $311 | $402 | $3,382 |
The common misconception
Many workers believe a raise or overtime pushes all of their income into a higher bracket. In reality, only the dollars earned above the bracket threshold are taxed at the higher rate. Your prior income is unaffected.
Try the default overtime withholding calculator →
Estimate the federal qualified-overtime deduction →
See also: how a raise affects take-home pay →
Overtime tax questions
Is overtime taxed at a higher rate than regular pay?
No. Overtime pay is taxed as ordinary income at your marginal bracket rate. It is not subject to a special overtime tax rate. However, receiving overtime in a single pay period can increase withholding because payroll systems may project your annual income based on that period's earnings.
How much of my overtime pay do I actually keep?
The portion you keep depends on your marginal federal bracket, state income tax rate, and FICA. Use the overtime calculator above to see the exact amount for your salary and state in 2026.
Does overtime push me into a higher tax bracket?
It can push additional dollars into a higher bracket, but only those dollars above the bracket threshold are taxed at the higher rate. Your existing income is not re-taxed.
Is FICA withheld on overtime pay?
Yes. Social Security tax (6.2%) applies to overtime wages up to the 2026 wage base, and Medicare (1.45%) applies to all wages with no cap.
Why does my paycheck look smaller than expected on overtime weeks?
Payroll systems often withhold more on high-earning weeks because they annualise that pay period's earnings to estimate your full-year income. You may receive a refund when you file if this results in over-withholding.
What is time-and-a-half worth after taxes?
At 1.5× your base rate, the gross premium is 50% more, but after taxes, the net premium is smaller. Use the calculator above to see the exact after-tax value of overtime at your rate and state.