Most states tax overtime the same way they tax regular wages
Overtime pay is taxed as ordinary income in every state that has a state income tax. There is no special exemption or lower tax rate for hours worked beyond 40 per week. Your employer withholds state income tax from overtime checks using the same percentage they use for your regular pay.
A few states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax at all, so overtime is never taxed at the state level in those places. If you live in any other state, overtime is taxed.
Federal income tax also applies to overtime with no reduction or exemption. The federal tax rate depends on your total annual income and filing status, not on whether the money came from overtime hours.
Key Takeaways
- Eight states have no state income tax, so overtime pay is not taxed by the state in those places.
- In all other states, overtime is taxed at your regular state income tax rate with no special break.
- Federal income tax applies to overtime pay at the same rate as regular wages, based on your total income for the year.
- Your employer withholds taxes from overtime paychecks automatically; you do not have to request it or wait for a program to start.
How overtime withholding works on your paycheck
When you work overtime, your employer calculates the gross pay for those extra hours and applies the same tax withholding they use for regular hours. If you earn $20 per hour and work 10 hours of overtime at time-and-a-half, that is $300 in gross overtime pay. Your employer then withholds federal income tax, Social Security tax (6.2 percent), Medicare tax (1.45 percent), and state income tax (if your state has one) from that $300.
The withholding happens automatically on the paycheck that includes the overtime hours. You do not need to sign up for anything or wait for a program to begin. The amount withheld depends on the tax bracket your total annual income puts you in, not on the fact that the money came from overtime.
If you think too much or too little is being withheld, you can adjust your W-4 form with your employer. This form tells your employer how many allowances to claim, which changes the withholding percentage. You might lower your allowances if you want more withheld, or raise them if you want less withheld.
States with no income tax on any wages
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax wages at the state level. If you live in one of these states and work overtime, you owe no state income tax on the overtime pay or any other wages. You still owe federal income tax.
Some of these states fund government through other means — sales tax, property tax, or business taxes — rather than income tax. Living in a no-income-tax state does not mean you pay no taxes overall; it means your state does not take a cut of your paycheck.
What happens if you move to a different state mid-year
If you move from a state with income tax to a state without it, or vice versa, your withholding changes on the date you move. You should notify your employer and provide a new W-4 form for your new state of residence. Your old state may still tax income you earned while living there, even after you move.
At tax time, you may owe taxes to your old state for the portion of the year you lived there, and you may be owed a refund from your new state if you overpaid. You file a part-year resident return in both states to sort this out. Keep records of when you moved and where you worked during each period of the year.
Overtime and your annual tax bill
Overtime pay affects your total taxable income for the year, which can push you into a higher tax bracket. If you earn $50,000 in regular wages and $10,000 in overtime, your taxable income is $60,000. The extra $10,000 may be taxed at a higher rate than your regular wages, depending on the tax brackets in your state and at the federal level.
This is why some people find that overtime paychecks have a larger percentage withheld than regular paychecks. It is not because overtime is taxed differently; it is because the total income for the year is higher, and higher income is taxed at a higher rate.
When you file your tax return, you report all income — regular and overtime — together. The IRS and your state tax authority calculate your final tax bill based on your total income. If too much was withheld during the year, you get a refund. If too little was withheld, you owe.
Self-employed overtime and contract work
If you are self-employed or work as an independent contractor, you do not have an employer to withhold taxes. You are responsible for paying federal income tax, self-employment tax (which covers Social Security and Medicare), and state income tax on your own. You may need to make quarterly estimated tax payments to avoid penalties.
Self-employment tax is higher than the employee portion of Social Security and Medicare because you pay both the employer and employee share — a total of 15.3 percent. This applies to all your self-employed income, not just overtime hours. Keeping records of hours worked and income earned helps you calculate what you owe.
Frequently Asked Questions
Is there a state that does not tax overtime but taxes regular wages?
No. Every state either taxes all wages the same way or taxes no wages at all. There is no state that treats overtime differently from regular pay.
Can I claim overtime pay as tax-exempt on my W-4?
No. You cannot exempt overtime from withholding. You can adjust your overall withholding by changing your W-4 allowances, but this affects all your pay, not just overtime.
Does working overtime move me to a higher tax bracket permanently?
No. Tax brackets are based on your total income for the year. Once the year ends and you file your return, your bracket is set. Overtime in one year does not affect your bracket in the next year unless you earn overtime again.
What if my employer did not withhold taxes from my overtime pay?
Contact your employer and ask why. Employers are required to withhold taxes from all wages, including overtime. If your employer failed to do so, you may owe the taxes when you file your return, and your employer may face penalties.
Do I have to report overtime separately on my tax return?
No. You report your total wages on your tax return, not broken down by regular and overtime hours. Your W-2 form shows total wages paid, and that is what you report to the IRS and your state.