Is overtime taxed in 2026?

Yes. Overtime pay is taxed and withheld like regular wages, for federal income tax, Social Security, Medicare and usually state tax. The change: for 2025 through 2028, you can deduct the extra half of time and a half, up to $12,500 a year ($25,000 on a joint return), on your federal return.

The deduction covers only the premium federal overtime law requires, so state-only overtime, such as California's daily overtime, does not count. It shrinks by $100 for every $1,000 of modified adjusted gross income over $150,000 ($300,000 joint). It never cuts Social Security or Medicare.

Say you earn $25 an hour with 5 overtime hours a week. The premium comes to $3,250 for the year, which cuts federal tax by about $390 for a single filer. You can claim it in W-4 Step 4(b) for bigger checks now. Try the hourly paycheck calculator or the tips and overtime guide.