Paycheck Basics · 4 min read
How Overtime Is Taxed (And Why It's Not Punished)
Overtime pay is taxed at your normal marginal rate — not a special 'overtime rate'. We break down the myth.
A common workplace myth says overtime is taxed at a higher rate, so working extra hours 'isn't worth it.' That's not how the U.S. tax code works.
Overtime uses marginal brackets — same as regular pay
Every dollar you earn is taxed at the rate of the bracket it falls into. Overtime hours simply add to your gross wages; they don't get a special rate.
Why the paycheck *looks* taxed more
Withholding tables annualize your check. A big overtime paycheck looks like you earn that much every period, pushing the withholding rate higher. You get the excess back at tax time.
Premium pay vs taxable pay
FLSA requires 1.5x pay for hours over 40/week. That premium is the labor rule — taxes still treat each dollar as ordinary wages.