Is overtime taxed at a higher rate?

No. Overtime is taxed at the same rate as regular income. The confusion comes from withholding: your employer withholds taxes from each paycheck based on projected annual income. A big overtime check makes the system think you earn that much every week, so it withholds more. But when you file taxes, you get the excess back as a refund.

Why does my overtime check seem so heavily taxed?

Your payroll system uses one of two IRS-approved methods: the percentage method (flat 22% supplemental rate for overtime specifically) or the aggregate method (adds overtime to regular pay and calculates withholding on the combined amount as if you earn that every period). Both can over-withhold, but you'll get the difference back when filing.

Is there a proposal to stop taxing overtime?

Yes, there have been political proposals to eliminate federal income tax on overtime pay. As of 2026, overtime is still subject to normal federal income tax. If enacted, workers earning $25/hr with 10 hours/week OT could save $3,000-$5,000 annually in federal taxes.

Is Overtime Taxed More? How Overtime Tax Actually Works

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The Short Answer

Overtime is NOT taxed at a higher rate.
It's withheld more, but you get the excess back when filing.

Why Your Overtime Check Looks So Taxed

Your employer's payroll system uses one of two IRS-approved methods to calculate withholding on overtime:

Method	How It Works	Effect
Percentage Method	Withholds a flat 22% on all "supplemental wages" (overtime, bonuses)	Simple but often over-withholds for 12% bracket workers
Aggregate Method	Combines OT + regular pay, calculates tax as if you earn that amount every pay period	Over-withholds because it assumes every week is an OT week

Real Example: $25/hour with 10 Hours OT

Regular pay (40 hrs × $25)	$1,000.00
Overtime pay (10 hrs × $37.50)	$375.00
Total gross	$1,375.00
What payroll withholds (aggregate method)	-$302.50 (22%)
What you'd actually owe (12% effective)	-$165.00
Over-withholding (refunded at tax time)	$137.50/week = $7,150/year

This is why people think overtime is "taxed more." The paycheck is smaller per dollar, but you get it all back when filing. At $25/hr, your annual income with this OT schedule would be $71,500.

Overtime Impact by Base Rate

Base Rate	40hr Annual	50hr Annual	OT Bonus	Actual Tax Rate
$15/hr	$31,200	$42,900	+$11,700	~12%
$20/hr	$41,600	$57,200	+$15,600	~12-22%
$30/hr	$62,400	$85,800	+$23,400	~22%
$40/hr	$83,200	$114,400	+$31,200	~22-24%

💡 Pro Tip: Adjust Your W-4

If you consistently work overtime and get large tax refunds, you're giving the IRS an interest-free loan. Update your W-4 to reduce withholding — you'll take home more each paycheck instead of waiting for a refund. Use the IRS Withholding Estimator to dial it in. For state-specific calculations, try PaycheckWiz →

Can Overtime Push You Into a Higher Tax Bracket

Technically yes, but it doesn't matter. US taxes are marginal — only the income within the higher bracket is taxed at the higher rate. If overtime pushes you from the 12% bracket into the 22% bracket, only the dollars above the threshold are taxed at 22%. Your earlier income is still taxed at 12%.

Example: At $30/hr base with 10 hrs OT/week ($85,800/year), your effective federal rate is about 14.2% — not 22%, even though part of your income falls in the 22% bracket.

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Sources

Updated March 2026.

Is Overtime Taxed More? (No — Here's Why)