Why the check looks over-taxed
Employers may withhold on supplemental wages (overtime, bonuses) at a flat 22% instead of the W-4 tables. If your regular effective withholding is 12–15%, an overtime check at 22% federal looks beaten up — before FICA and state tax. The excess is a prepayment the IRS holds until you file, not extra tax.
What the 2026 rule changes
Starting in 2026, the FLSA-required half-time premium — the extra half of time-and-a-half — is deductible from federal income tax, up to $12,500 per year ($25,000 joint), phasing out above $150,000 MAGI ($300,000 joint). At time-and-a-half, the premium is one-third of gross OT pay. So a worker at $25/hour with 10 OT hours gets $375 gross, of which $125 is premium — a $27.50 federal saving at the 22% withholding rate, trued up at filing.
What never changes
- FICA: 7.65% on every overtime dollar — the 2026 deduction doesn't touch payroll taxes.
- State tax: most states tax overtime as ordinary wages; nine states with no income tax don't.
- Bracket myth: overtime can't be taxed at a higher rate than the same amount of salary income.
Practical takeaways
- A small net on an OT check usually means over-withholding, not lost money — expect it back at filing (or via the 2026 deduction).
- If your MAGI nears $150K/$300K, the deduction shrinks by $100 per $1,000 over.
- Track OT premium if you're near the cap — $12,500 of premium equals $37,500 of time-and-a-half gross.
Frequently Asked Questions
Does overtime push me into a higher tax bracket?
It adds to taxable income like any wages, so a very high-OT year could cross a bracket threshold — but only the dollars above the threshold are taxed at the higher rate, exactly as salary dollars would be. Overtime is never taxed at a special higher rate.
Why did my employer withhold 22% on overtime?
Because the IRS allows the flat supplemental rate on OT and bonus payments. It's administratively simple for payroll and frequently overshoots the true liability, which you recover at filing.