Is Overtime Taxed at 40%?
If you’ve ever worked overtime and felt like a big chunk of your extra pay disappeared, you’re not alone. Many people believe overtime is taxed at a flat 40%. But that’s a myth.
Here’s what’s really going on with overtime and taxes.
Overtime Isn’t Taxed Separately
There is no special tax rate just for overtime pay. Overtime is considered regular income by the IRS, and it’s taxed at the same rates as your other wages. So whether you earn money during standard hours or from working late, it’s all added together and taxed based on your total income and filing status.
Federal Income Tax Brackets Apply
In 2025, federal income tax rates range from 10% to 37%. Your marginal tax rate depends on how much you earn overall, not just your overtime.
If you’re seeing what looks like a 40% deduction on your overtime check, that’s probably not your actual tax rate—it’s likely the result of withholding.
Why It Feels Like 40%
When you receive a bonus or a one-time chunk of overtime pay, your employer may use the percentage method to calculate federal withholding. This method often applies a flat 22% rate or uses your current income level to estimate your tax bracket—sometimes overestimating your final tax.
In addition to federal income tax, your overtime pay is also subject to:
Medicare tax (1.45%)
Possibly state income tax (if your state has one)
All of this can cause your paycheck to shrink more than expected—but again, this isn’t a 40% tax rate, just withholding.
You May Get a Refund
Because withholding is just an estimate, many workers end up getting a tax refund when they file their returns—especially if too much was withheld from overtime or bonuses.
Final Thoughts
So, is overtime taxed at 40%? No. That’s a misconception. While your paycheck might take a hit due to higher withholding, your actual tax bill is based on your total income. Understanding how it works can help you avoid confusion—and maybe even adjust your withholdings.