Overtime pay in Texas is taxed only at the federal level: your marginal federal income tax rate (10% to 37% depending on total earnings) plus 7.65% for Social Security and Medicare. Texas charges no state income tax on any of it. And for tax years 2025 through 2028, a new federal deduction lets many workers shield up to $12,500 of their overtime premium ($25,000 for joint filers) from federal income tax, which changes the real take-home number for anyone logging extra hours.
Texas Takes Nothing From Your Overtime
Texas is one of the states with no personal income tax. Regular wages, overtime, bonuses, commissions: none of it shows a state withholding line on your paystub, and you don’t file a state return. Whatever gets taken out of your overtime check is federal.
Federal Income Tax on Overtime
The federal system is progressive. Income is taxed in layers, and overtime dollars stack on top of your regular wages at whatever bracket you’ve reached. There is no penalty rate for overtime specifically; it’s just more income taxed at your next marginal rate.
For 2026, single-filer brackets are:1Internal Revenue Service. Revenue Procedure 2025-32
- 10% up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% above $640,600
Married couples filing jointly get brackets roughly double those figures, topping out at 37% above $768,700.1Internal Revenue Service. Revenue Procedure 2025-32
The 2026 standard deduction is $16,100 for single filers and $32,200 for joint filers, which comes off your gross income before the brackets apply.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A single Texan earning $70,000 in total wages has taxable income around $53,900 after the standard deduction, placing their top marginal rate at 22%. Overtime earned on top of that regular salary is taxed at 22% until the next bracket line is crossed.
FICA Takes 7.65% No Matter What
Every overtime dollar is also subject to FICA payroll taxes for Social Security and Medicare. These are flat and unavoidable.
Social Security tax is 6.2% on wages up to $184,500 in 2026.3Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Once combined regular and overtime wages pass that ceiling, the Social Security piece stops.4Social Security Administration. Contribution and Benefit Base Most workers never hit it. Medicare tax is 1.45% on all wages with no cap, and an additional 0.9% kicks in on wages above $200,000 for single filers or $250,000 for joint filers, pushing the Medicare rate to 2.35% above those thresholds.5Internal Revenue Service. Topic No. 560, Additional Medicare Tax
For a typical Texas worker under the Social Security cap, FICA takes a flat 7.65% of every overtime dollar. The new overtime deduction described below does not reduce this. FICA still applies to the full overtime payment.
The New Federal Overtime Deduction
For tax years 2025 through 2028, federal law allows a deduction for a portion of overtime pay, and this is the biggest change to how overtime is taxed for Texas workers in years.
The deduction covers only the premium portion of overtime, not the whole overtime check. If your employer pays time-and-a-half, the deductible amount is the “half” above your regular hourly rate.6Internal Revenue Service. What to Know About the No Tax on Overtime Deduction Earn $30 an hour with a $45 overtime rate, work 200 overtime hours, and your total overtime pay is $9,000, but only $3,000 of that (the $15-per-hour premium) is deductible.7Internal Revenue Service. Treasury, IRS Provide Guidance for Individuals Who Received Tips or Overtime During Tax Year 2025
The main rules:
- Maximum deduction is $12,500 per year, or $25,000 for married filing jointly.
- The deduction begins phasing out once modified adjusted gross income exceeds $150,000 ($300,000 joint), shrinking by $100 for every $1,000 above the threshold.
- Only overtime required by section 7 of the Fair Labor Standards Act counts. Salaried exempt employees who don’t receive legally mandated overtime cannot claim it.8Office of the Law Revision Counsel. 26 USC 225 – Qualified Overtime Compensation
- You need a valid Social Security number. Married couples must file jointly to claim it. The deduction is available whether you take the standard deduction or itemize.6Internal Revenue Service. What to Know About the No Tax on Overtime Deduction
You claim it on Part III of Schedule 1-A, attached to your Form 1040.9Internal Revenue Service. IRS Published Schedule Taxpayers Will Use to Claim Deductions on No Tax on Overtime, No Tax on Car Loans, No Tax on Seniors Employers aren’t required to separately report qualified overtime compensation on your 2025 W-2, so you may need to calculate the premium portion yourself using the Schedule 1-A instructions.10Internal Revenue Service. One, Big, Beautiful Bill – How to Take Advantage of No Tax on Tips and Overtime
What it’s actually worth depends on your bracket. A worker in the 22% bracket who deducts $5,000 of overtime premium saves $1,100 in federal income tax. Someone in the 12% bracket deducting the same amount saves $600. FICA is untouched either way.
Why Your Overtime Check Looks Smaller Than It Should
This is where most of the confusion comes from. You put in 15 extra hours, expect a noticeably larger paycheck, and the withholding seems to eat most of it. The money isn’t gone; your employer’s payroll system is just bad at guessing your annual tax bill when your pay fluctuates.
The IRS classifies overtime as “supplemental wages.”11Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide When overtime lands on the same check as regular wages, most employers combine everything, treat the inflated total as your normal pay period, and annualize from there. If a $2,000 biweekly check comes in at $3,200 because of overtime, the system may withhold as though you earn $3,200 every two weeks (about $83,200 a year), which pushes the calculation into a higher bracket than you actually occupy. Some employers instead withhold a flat 22% on the overtime portion, which is closer to accurate for workers already in that bracket but still over-withholds for lower earners.
Either way, the over-withholding corrects at tax time. The IRS compares total withholding against your actual liability and refunds the difference. The overtime didn’t cost you extra tax. Payroll just collected it early.
Adjusting Your W-4 So You Keep More Now
If you regularly work overtime and don’t want to wait until spring for the money, you can adjust Form W-4 to reflect the new deduction. The 2026 W-4 includes a Deductions Worksheet on page 4 with a specific line for qualified overtime compensation.12Internal Revenue Service. Form W-4 (2026) Employees Withholding Certificate
If your income is under $150,000 ($300,000 joint), enter an estimate of your deductible overtime premium (up to $12,500, or $25,000 joint) on the worksheet. The result flows into Step 4(b), telling your employer to reduce withholding across the year. More money in each paycheck, smaller refund at filing.
Be conservative. If you claim more deduction than you actually earn in premium pay, you’ll owe when you file. Slight over-withholding beats an unexpected tax bill.
Only FLSA Overtime Qualifies
One boundary worth flagging: the deduction only applies to overtime required by the Fair Labor Standards Act, which generally means 1.5 times your regular rate for hours over 40 in a workweek. If you’re a salaried exempt employee (executive, administrative, professional, computer, or outside sales roles that meet the duties and salary tests), you don’t receive FLSA overtime and can’t claim the deduction, even if your employer pays you extra for long weeks.13eCFR. 29 CFR Part 541 – Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees Contractual bonuses for extra hours, comp time, and shift differentials generally aren’t FLSA overtime either.
A Warning for Lower-Income Workers
If your household relies on the Earned Income Tax Credit, overtime can quietly cost you. The EITC phases out as income rises. A single parent with two children loses it entirely once adjusted gross income exceeds roughly $58,600 in 2026.1Internal Revenue Service. Revenue Procedure 2025-32 The credit can be worth several thousand dollars, so a heavy overtime season near the phase-out line can wipe out more than the extra hours pay. Before agreeing to a long stretch of overtime, it’s worth checking where your projected income lands against the EITC schedule for your family size.