Overtime Pay Rules and Taxes: Who Gets It and How It Is Paid (2026)

By the USPaycheckGuide Editorial Team · Reviewed by Shaharyar Abid · Last updated September 26, 2026

Overtime is the extra pay that many hourly workers earn for working more than a standard week, and it can add hundreds of dollars to a paycheck. But the rules about who gets it, how much it pays and how it is taxed are widely misunderstood. This guide explains federal and state overtime rules in 2026, how to calculate overtime pay, how it is taxed, and how to check that your employer has paid it correctly.

Overtime rules come from the federal Fair Labor Standards Act and from state law, and the more generous rule applies to you. Always check your state labor department for the details that apply where you work.

1. The federal overtime rule

Under the Fair Labor Standards Act, covered non-exempt employees must be paid at least one and a half times their regular rate for hours worked over 40 in a workweek. A workweek is a fixed period of 168 hours, seven consecutive 24-hour periods, and it does not have to be a calendar week. The 40-hour limit applies to each workweek separately, so you cannot average two weeks together.

The regular rate is not always the hourly wage. It includes most forms of pay for the week, such as shift differentials, non-discretionary bonuses and commissions, divided by total hours worked. If you earn $20 an hour plus a $100 non-discretionary attendance bonus for 45 hours, your regular rate is $20 plus $100 divided by 45, about $22.22, and overtime for the 5 hours is at $33.33 an hour.

Only hours actually worked count. Paid holidays and vacation are not hours worked for overtime purposes under federal law, though some employers and contracts count them.

2. State overtime rules

Several states have stricter rules than the federal law. California requires overtime for hours over 8 in a day, double time for hours over 12 in a day, and premium pay on the seventh consecutive day of work in a week. Alaska, Nevada for some workers and Colorado also have daily overtime rules. Some states, such as Minnesota and Oregon in certain industries, have different weekly thresholds.

A number of states set higher salary thresholds for exempt status than the federal rules. Where the state rule is more generous to employees, the employer must follow it. A few states have no state overtime law and simply follow federal rules.

If you are unsure, look up your state's department of labor guidance or ask your employer for the written policy.

3. Who is exempt from overtime

Many salaried workers are exempt if they meet both a salary test and a duties test. The federal minimum salary level for the white-collar exemptions is $684 a week, or $35,568 a year, following a court decision that vacated a larger increase proposed in 2024, and this level may change. Highly compensated employees earning above a higher level of $107,432 a year may qualify under a simpler duties test.

The duties test asks whether the job is primarily executive, administrative or professional, or falls under another exemption such as outside sales or certain computer jobs. A job title alone does not decide the question, and paying a salary does not automatically make someone exempt.

Some workers are exempt for other reasons, including many agricultural workers, certain truck drivers and others covered by special rules. Misclassification of employees as exempt is a common wage violation, so check your duties if you regularly work long hours for a fixed salary.

4. How overtime is calculated: worked examples

A worker paid $18 an hour works 46 hours in a week. Regular pay is 40 times $18, or $720. Overtime is 6 hours times $27, or $162, for total gross pay of $882. If paid weekly and filing single with no deductions, federal income tax withholding would be roughly $60 to $80, Social Security and Medicare $67.47, so take-home pay is well over $700 in a state with no income tax.

For a California worker paid $20 an hour who works 10 hours a day for four days, the first 8 hours each day are regular time and the extra 2 hours each day are overtime at $30, so overtime is 8 hours times $30, or $240, even though the week is only 40 hours. This shows how state rules can produce overtime where federal law would not.

Some employers use the fluctuating workweek method for salaried non-exempt workers, which pays an extra half time on the hours over 40, based on the regular rate. This is allowed under certain conditions, and the results are different from the standard method.

5. How overtime is taxed

Overtime is ordinary wages. It is subject to federal income tax, Social Security, Medicare and state and local taxes just like regular pay. It is not taxed at a higher rate by law. However, a large overtime paycheck can make withholding look heavier. Payroll systems annualize each paycheck to compute withholding, so a week with high pay is treated as if you earned that much every week, which puts the extra income in a higher bracket for that paycheck.

The result is that overtime feels heavily taxed, but the difference is corrected when you file your return, and you may receive a refund if too much was withheld. Overtime also counts as income for credits and deductions.

New federal law also provides a temporary deduction for qualified overtime pay, which applies to the premium portion, the extra half in time and a half, up to a limit, and phases out at higher incomes. It affects income tax only, not Social Security and Medicare tax. See the tips and overtime deduction calculator on this site for an estimate.

6. Overtime and your budget

Overtime can be uneven, so avoid building fixed bills on it. A common approach is to budget on your regular pay and treat overtime as a bonus for savings, debt payments or a goal. Check your tax withholding during heavy overtime seasons, and consider adjusting your Form W-4 if you regularly earn much more than your base pay.

If overtime is offered voluntarily, compare the after-tax value of the extra hours with the cost of childcare, commuting and fatigue. The hourly take-home rate on overtime hours is often between 65% and 80% of the pay rate. Use the hourly paycheck calculator on this site to test different weekly hours.

7. Common overtime miscalculations employers make

One of the most frequent overtime errors is failing to include non-discretionary bonuses, commissions, or shift differentials in the regular rate used to calculate overtime, which understates the true overtime rate an employee is owed. Under federal law, the regular rate must include most forms of compensation, not just the base hourly wage.

Another common mistake is misclassifying an employee as exempt from overtime when their actual job duties don't meet the specific duties test required for that exemption, regardless of job title or salary level. Title alone, like calling someone a manager, does not make a position exempt if the employee doesn't actually perform exempt-level duties like supervising two or more full-time employees.

8. What to do if you think you were underpaid for overtime

Start by keeping your own detailed records of hours worked, since employer records aren't always accurate, and compare your pay stubs against your own log to identify specific discrepancies. Note the dates, hours worked, and what you were actually paid for those hours.

If you find a consistent shortfall, you can raise it with your employer's payroll or HR department first, but if that doesn't resolve it, you can file a complaint with the U.S. Department of Labor's Wage and Hour Division, or in some cases your state's labor department, which can investigate and recover back pay on your behalf without cost to you.

9. Comp time, on-call time and other issues

Private employers generally cannot give compensatory time off instead of overtime pay, although government employers can under certain rules. Time spent traveling between job sites, waiting that is controlled by the employer, required training and being on call at the workplace generally counts as hours worked. Time on call at home is often not counted unless restrictions are severe.

Off-the-clock work is illegal for non-exempt workers, even if the employee agrees. If you answer emails, prepare equipment before a shift or stay after clock-out, that time counts. Employers may discipline workers for unauthorized overtime, but must still pay for the hours worked.

Rounding of time punches is allowed if it averages out fairly, but it cannot consistently favor the employer.

10. How to check your overtime and what to do if it is wrong

Compare your time records with your pay stub. Look for the regular hours, overtime hours, rate and total. Overtime hours should be paid at at least one and a half times the regular rate, including any bonuses or shift differentials that are part of the regular rate.

If your overtime is missing or wrong, first raise it with payroll in writing, with your hours and the pay stub. If that fails, you can file a complaint with the U.S. Department of Labor's Wage and Hour Division or your state labor agency. Federal law generally allows claims for two years, or three years for willful violations, and retaliation for making a complaint is illegal.

Keep your own record of hours, in a notebook or app, since employer records may be incomplete.

11. Overtime for public employees and comp time

Private employers must pay overtime in cash. State and local government employers are allowed to give compensatory time off instead, at a rate of 1.5 hours of comp time for each overtime hour, under an agreement made before the work is done. Most public employees can bank up to 240 hours of comp time (480 hours for police, fire, emergency and seasonal workers); beyond that, overtime must be paid in cash. Unused comp time must be paid out when you leave. Federal employees have their own overtime rules under Title 5 rather than the same FLSA framework.

Frequently Asked Questions

How much is overtime pay?

At least one and a half times your regular rate for hours over 40 in a workweek under federal law.

Is overtime taxed more?

No. It is taxed at the same rates, though withholding can look higher on a large paycheck.

Do salaried employees get overtime?

Some do. Salaried workers are exempt only if they meet the salary and duties tests.

Do holidays count toward overtime?

Not under federal law, though some employers count them.

Can my employer give me time off instead of overtime?

Private employers generally cannot, though public employers can under certain conditions.

Is there a federal deduction for overtime?

A temporary deduction applies to the premium part of qualified overtime, subject to limits.

Can an employer require overtime?

Generally yes, if the job requires it, though some states and contracts limit mandatory overtime, especially for certain health care workers.

Does my job title determine whether I get overtime?

No, job title alone doesn't determine overtime eligibility; your actual job duties and how you're paid are what matter under federal and state law.

What should I do if I think my overtime was calculated incorrectly?

Keep your own record of hours worked, compare it to your pay stubs, and raise discrepancies with your employer first before filing a complaint with the Department of Labor if it isn't resolved.

Is overtime required on weekends or holidays?

Not under federal law. Overtime depends on hours over 40 in a workweek, not on which days you work, unless state law or a contract says otherwise.

How long do I have to claim unpaid overtime?

Generally two years under federal law, or three years if the violation was willful. Some state laws allow longer.

Can I waive my right to overtime?

No. Federal overtime rights cannot be waived by agreement, even if you sign something saying you will not claim it.

Are nurses entitled to overtime?

Most hourly nurses are. Some salaried registered nurses can be exempt professionals, but hospitals often pay overtime under policy or union contracts.

This article is for general education only and is not tax, legal or investment advice. Figures and rules change; confirm details with the IRS or a qualified professional before making decisions.