If you’ve ever seen headlines, TikToks, or forum posts claiming there's “no tax on overtime”, you’re not alone. It’s one of the most common misconceptions floating around tax season. The reality? Overtime is taxable income, and misunderstanding how it works could leave you with a surprise tax bill—or missed opportunities for a bigger refund.
This article breaks down how federal income tax applies to overtime, how it affects your tax refund status, and what strategies you can use to manage overtime pay more efficiently.
According to the Fair Labor Standards Act (FLSA), overtime is typically any hours worked beyond 40 in a single workweek. Employees must be paid at least 1.5 times their regular hourly rate for overtime hours.
No. Overtime pay is taxed the same way as your regular wages. It’s added to your gross income and subject to:
If you’re earning a significant amount of overtime, it may bump your marginal tax rate, which could reduce your take-home pay more than expected—but it doesn’t mean you're in a “higher tax bracket” overall.
The U.S. uses a progressive tax system. This means you’re only taxed at higher rates on the portion of your income that exceeds each bracket’s threshold.
Let’s say you earn $60,000 annually and take on extra shifts that push you to $70,000. Only the $10,000 in additional income is taxed at the higher marginal rate—not your entire salary.
📌 Pro Tip: If you regularly earn overtime, it’s wise to increase your tax withholding to avoid surprises come tax season.
Many employees assume that overtime will give them a bigger refund. While that can be true, it depends on how much was withheld throughout the year versus your total tax liability.
💡 Use the IRS Withholding Estimator to ensure you're on track, especially if overtime shifts are regular.
Truth: While a larger portion of overtime pay may be taxed at a higher rate, you still take home more money overall.
Truth: It only affects the additional earnings, not your entire salary.
Truth: Refunds are based on how much tax you paid vs. how much you owe. More income can still result in a refund if you had proper withholding.
Regular Pay
Overtime Pay
Update your W-4 form if your income increases consistently with overtime. This can prevent underpayment penalties and help balance your refund.
Use overtime earnings to contribute to:
Use tools or apps to log your overtime hours and associated pay. This can help you forecast your year-end income and tax bill more accurately.
If your income fluctuates or overtime becomes a major part of your salary, working with a CPA or tax advisor can help optimize your withholding strategy.
Does my employer take more taxes out of my overtime?
Not exactly. Your employer withholds based on your income level and pay period, so it may look higher because you’re earning more—but the rate remains consistent.
Will overtime hurt my eligibility for tax credits?
Possibly. Extra income could phase you out of certain tax credits like the Earned Income Tax Credit (EITC). Check the IRS income limits each year.
Can I avoid taxes on overtime if I get paid in a bonus instead?
No. Bonuses are also considered taxable income, and in many cases, taxed at a higher flat rate.
The idea that there’s “no tax on overtime” is a myth. But that doesn’t mean overtime isn’t worth your time. Understanding how it affects your federal income tax, planning your withholding, and using smart strategies can help you keep more of what you earn and even increase your tax refund status in the process.
Schedule a free call with the BetterWealth team to review your tax strategy and build a smarter financial future—overtime and all.