Is Overtime Still Taxed in CT? New Deduction and Withholding

Yes, overtime is taxed in CT. Connecticut treats overtime pay as ordinary wages subject to the state income tax, with no special rate or exemption, and federal income tax and payroll taxes apply on top. The one meaningful break is new: a federal deduction signed into law in 2025 lets many workers write off the premium portion of their overtime through 2028.

How Connecticut Taxes Overtime

The Connecticut Department of Revenue Services treats overtime compensation the same as any other wages, and the state’s tax definitions follow federal definitions of “employer,” “employee,” and “wages.”¹ Every overtime dollar you earn gets added to your Connecticut adjusted gross income and taxed under the state’s progressive brackets.

For single filers, the rates run:²

2% on the first $10,000
4.5% on $10,001 to $50,000
5.5% on $50,001 to $100,000
6% on $100,001 to $200,000
6.5% on $200,001 to $250,000
6.9% on $250,001 to $500,000
6.99% on income above $500,000

Joint filers and heads of household get wider brackets. Overtime income stacks on top of your regular earnings, so if your base pay already sits in the 5.5% bracket, your overtime starts being taxed there and may push some dollars into the 6% tier. Only the dollars above each threshold get the higher rate.

Legislators have floated changing this. Proposed Bill No. 5024 would amend the general statutes to exclude overtime income from the personal income tax entirely.³ It and similar proposals remain in committee. Until one passes, Connecticut overtime is fully taxable at the state level.

How Federal Income Tax Applies

Federal law defines gross income as all compensation for services, which includes overtime.⁴ There is no separate overtime tax rate. Your overtime earnings get pooled with your regular wages, and the ordinary brackets apply to the total.

For 2026, single-filer federal brackets are:⁵

10% on income up to $12,400
12% on $12,401 to $50,400
22% on $50,401 to $105,700
24% on $105,701 to $201,775
32% on $201,776 to $256,225
35% on $256,226 to $640,600
37% on income above $640,600

Joint-filer thresholds are roughly double. Because the brackets are marginal, only the dollars above each cutoff get the higher rate.

The New Federal Overtime Deduction

The One Big Beautiful Bill Act, signed in 2025, created a federal deduction for qualified overtime compensation for tax years 2025 through 2028.⁶ It applies to federal returns only; Connecticut has no matching deduction.

The deduction covers just the premium portion of overtime pay. If you earn time-and-a-half, you can deduct the “half” above your regular rate; the base rate for those hours is still fully taxable. At a $30 regular rate, 10 overtime hours paid at $45 yield $150 of deductible premium that week.⁶

The limits:

Annual cap of $12,500 for single filers, $25,000 for joint filers.
Phaseout begins at modified adjusted gross income above $150,000 ($300,000 joint).
Only overtime required under the Fair Labor Standards Act qualifies. Voluntary overtime outside the FLSA does not.
The overtime must appear on a W-2, 1099, or other specified statement, and employers must report qualified overtime separately.
Married taxpayers must file jointly to claim it.

The deduction is available whether you itemize or take the standard deduction.⁶ It is a deduction, not an exclusion: your overtime still shows up as income on your W-2, and you subtract the qualified amount when calculating taxable income. The provision expires after 2028 unless Congress extends it.

Payroll Taxes Still Hit Every Overtime Dollar

The federal overtime deduction only reduces income tax. Payroll taxes apply to every overtime dollar with no bracket to soften them.

Social Security tax runs 6.2% on wages up to $184,500 in 2026. Most workers never hit that ceiling, so every overtime dollar carries the full 6.2%. Medicare adds 1.45% on all wages with no cap, plus an extra 0.9% Medicare surtax once total wages pass $200,000 ($250,000 joint).⁷ Heavy overtime can push you past that surtax threshold when your base salary alone would not.

Connecticut also deducts 0.5% in 2026 for the state’s Paid Family and Medical Leave program, applied to wages up to the Social Security wage base of $184,500.⁸ Overtime is included.

Add it up and a Connecticut worker under the wage base pays at least 7.65% in federal payroll taxes plus 0.5% for CT Paid Leave on every overtime dollar before income tax applies.

Why Your Overtime Paycheck Looks So Small

The biggest complaint about overtime taxes is really a complaint about withholding. The amount pulled from a heavy overtime check almost always overstates what you will actually owe for the year.

For federal withholding, your employer picks one of two methods. Under the aggregate method, payroll software combines the overtime with your regular pay for that period and withholds as if every paycheck of the year were that size. A $2,500 check for someone who normally earns $1,500 biweekly gets treated as $65,000 annualized income, so the withholding rate matches that inflated projection. Under the flat percentage method, the employer withholds a flat 22% on the supplemental wages regardless of your actual bracket.⁹ For someone in the 12% bracket, that is nearly double the correct rate.

Connecticut has no flat supplemental rate. Employers must use the aggregate approach, combining overtime with regular wages and calculating state withholding as though the total were a single payment for the regular pay period.¹⁰ Same inflation problem on the state side.

Over-withholding corrects itself at filing. If too much came out during the year, the excess comes back as a refund. The real cost is that the money sits with the government interest-free until you file.

Overtime Will Not Leave You Worse Off

A persistent myth says overtime can bump you into a higher bracket and leave you behind. Both the Connecticut and federal systems tax income in layers. Each bracket only applies to the income within that range.

Say your taxable income as a single filer is $48,000 and overtime adds $10,000. The first $2,400 of that overtime (from $48,001 to $50,400) stays at 12%. Only the remaining $7,600 crosses into the 22% bracket.⁵ Your original $48,000 is unaffected. Connecticut layers the same way; crossing from 4.5% into 5.5% does not retroactively raise the rate on your earlier income.² Your effective rate always stays below your marginal rate, and working overtime always increases your take-home pay.

Fixing Your Withholding

If you work overtime regularly and keep getting large refunds, your withholding is probably set too high. File a new Form CT-W4 with your employer to adjust the state amount, and submit an updated federal W-4 to adjust federal withholding.¹¹ DRS publishes a guide to help you check whether your current withholding matches your expected liability.

If the new federal overtime deduction applies to you, your actual tax bill will be lower than standard withholding tables assume, which makes a W-4 adjustment especially worth doing. Aim close to your expected liability rather than trying to zero it out, because under-withholding can trigger a penalty.

1
Connecticut eRegulations. Regulations of Connecticut State Agencies – Section 12-701(b)-1 – Definitions
2
Connecticut General Assembly. Connecticut Income Tax Rates and Brackets Since 1991
3
Connecticut General Assembly. Proposed Bill No. 5024 – An Act Concerning an Exemption From the Personal Income Tax for Overtime Income
4
Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined
5
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
6
Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
7
Social Security Administration. Contribution and Benefit Base
8
Connecticut Paid Leave. Contributions
9
Internal Revenue Service. Publication 15 (2026), Circular E, Employer’s Tax Guide
10
Connecticut Department of Revenue Services. IP 2026(1), Connecticut Employer’s Tax Guide, Circular CT
11
Connecticut State Department of Revenue Services. Withholding Forms