💡 No, Your Overtime Isn’t Taxed More — Here’s What’s Really Happening

If you’ve ever looked at your paycheck after working extra hours and thought,

“Why did they take out so much tax?!”

You’re not alone — and you’re not wrong to wonder.

But here’s the truth: overtime pay isn’t taxed at a higher rate.
It’s withheld differently. Let’s unpack what that means — and why your refund (or tax bill) always balances it out in the end.

🧾 Withholding vs. Actual Tax Rate

When you get paid, your employer doesn’t calculate your actual annual tax in real time. They use IRS withholding tables to estimate your taxes and send money to the IRS on your behalf.

For regular wages, this is based on your W-4 and your normal pay frequency.

But for supplemental pay — like overtime, commissions, or bonuses — the IRS lets employers use a simpler method called the “flat rate.”
This flat rate is higher than what most people actually pay, which is why your check looks smaller.

At the end of the year, your true tax is calculated based on your total income and tax bracket — and that’s when everything gets balanced out.

💰 Example: $1,000 Regular Pay vs. $1,000 Overtime Pay

Let’s look at how this works in California.

A. Withholding at the Time of Payment

When you receive a regular paycheck of $1,000, your employer withholds based on your W-4 elections — usually around 12% for federal taxes, 4% for California state tax, plus Social Security and Medicare.

That means your paycheck might look like this:

• Federal withholding: about $120

• California tax: about $40

• Social Security: $62

• Medicare: $14.50
  👉 Total withheld: about $236.50
  👉 Take-home pay: around $763.50

Now compare that to $1,000 of overtime pay.
Because it’s considered “supplemental income,” employers are allowed to withhold at a flat rate — 22% for federal tax and 6.6% for California — instead of using your usual rate.

That means:

• Federal withholding: $220

• California tax: $66

• Social Security: $62

• Medicare: $14.50
  👉 Total withheld: about $362.50
  👉 Take-home pay: about $637.50

So while it feels like you’re being taxed more on overtime, you’re really just seeing more withheld up front.

B. Actual Tax Calculation at Year-End

Here’s where the myth falls apart.

Let’s say your annual income is $60,000 and you pick up an extra $1,000 in overtime, making your total income $61,000.

If your marginal tax rate is 12% federally and 4% for California, your total tax before overtime would be:

• Federal: $7,200

• State: $2,400
  👉 Total: $9,600

Now, after adding $1,000 of overtime, your new total is:

• Federal: $7,320

• State: $2,440
  👉 Total: $9,760

That’s only $160 more in total taxes owed for the entire year.

But remember: your employer already withheld $362.50 on that overtime check — which means you’ll likely get around $200 of that back as part of your refund.

✅ The Bottom Line

• Overtime, commissions, and bonuses aren’t taxed more.

• They’re simply withheld at a higher flat rate to prevent underpayment.

• Your real tax rate depends on your total income for the year, not the type of income.

• Any over-withholding is reconciled — and refunded — at tax time.

So next time you see that overtime check and think, “Wow, the IRS really got me,” just remember — it’s not higher taxes. It’s just a temporary withholding difference.

💬 Final Thought

Understanding how taxes and withholding really work can turn frustration into empowerment. When you know what’s happening behind the numbers, you can plan smarter, reduce surprises, and make your money work harder for you.

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