Oregon Overtime Tax Rate: Withholding, FICA, and Form OR-40

In Oregon, the overtime tax rate is the same as the rate on your regular wages: a progressive state income tax that runs from 4.75% to 9.9% depending on total annual income.1Oregon State Legislature. Oregon Code 316.037 – Imposition and Rate of Tax There is no separate or higher state rate for overtime hours. The reason an overtime check feels so much lighter than the hours would predict is withholding. Between Oregon state withholding, the federal 22% flat supplemental rate, Social Security, Medicare, and a handful of small Oregon payroll deductions, roughly 38% of a typical overtime check can be gone before it hits your account.

The Oregon Rates That Actually Apply to Overtime

Oregon has four brackets, and they work the same way federal brackets do: only the dollars inside a given range are taxed at that range’s rate. Overtime lands on top of your regular wages, so the rate that applies to the overtime is whichever bracket your top dollar sits in.

Most full-time Oregon workers earning between roughly $50,000 and $125,000 see their overtime taxed at 8.75%. Earnings above $125,000 are taxed at 9.9%, which is among the highest state income tax rates in the country. Working overtime does not retroactively increase the rate on wages you already earned.

Why Your Overtime Check Looks Smaller Than the Rate Suggests

The bracket rates describe your eventual tax liability. What you see on your pay stub is withholding, and withholding on overtime follows separate rules that routinely take more than your real marginal rate.

Oregon’s Two Withholding Methods

Oregon lets employers withhold state tax on overtime in one of two ways, both laid out in Publication 150-206-436.2Oregon Department of Revenue. Oregon Withholding Tax Formulas, 150-206-436 The first is a flat 8% on supplemental wages paid separately from a regular paycheck. For workers whose marginal rate is near 8.75%, this is reasonably accurate. If your real marginal rate is lower, the excess comes back as a refund; if higher, you may owe a small balance.

The second is the aggregate method. Payroll combines your overtime with regular wages for that pay period and runs the inflated total through the standard withholding formula as if that were your normal paycheck every period for the rest of the year. One heavy overtime week can trick the system into withholding at 9.9% even though your actual annual income will not come close to $125,000. This is the method behind the biggest gap between what you earned and what landed in your account.

The Federal 22% Flat Rate

On the federal side, IRS Publication 15 gives employers the same two choices for supplemental wages under $1 million: a flat 22% on the overtime portion regardless of your W-4 settings, or the aggregate method.3Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Most payroll systems default to the flat 22% because it is simpler. For many workers that 22% overshoots their real federal marginal bracket, and the difference comes back at tax time. Stacked on top of the Oregon 8%, income tax withholding alone can reach 30% of the overtime dollar before any payroll tax enters the picture.

Social Security and Medicare on Overtime

FICA is withheld on every overtime dollar and, unlike income tax withholding, it is precise and does not get adjusted at year-end. For 2026 the employee share is:

If your combined wages stay under $184,500, every overtime hour takes the full 7.65% FICA hit. Above that threshold the Social Security piece drops off, but Medicare keeps going.

Oregon-Specific Deductions on Overtime

Three small state deductions apply to overtime pay. None of them is large on its own, but they show up on the stub.

The Statewide Transit Tax takes 0.1% of all wages, including overtime, from every Oregon resident and from nonresidents working in Oregon.6Oregon Department of Revenue. Statewide Transit Tax Paid Leave Oregon collects a total 1% contribution on wages up to the Social Security wage base, with employees paying 60% of that (0.6% of wages).7Paid Leave Oregon. Common Questions The Workers’ Benefit Fund assessment for 2026 is 1.8 cents per hour worked, split between employer and employee.8Oregon Department of Consumers and Business Services. Workers’ Benefit Fund Assessment

One boundary worth knowing: TriMet and Lane Transit District taxes are not employee deductions. Both are employer-only payroll taxes, and Oregon law prohibits employers from deducting them from your wages.9Oregon State Legislature. Oregon Revised Statutes 267.385 – Employer Payroll Tax, Collection, Enforcement If TriMet or LTD appears as an employee line item on your pay stub, something is wrong.

What One Overtime Hour Really Costs

Say your regular rate is $30 per hour, which makes your overtime rate $45. Assuming flat-rate withholding and the 8.75% Oregon bracket, here is what comes out of that one overtime hour:

  • Federal income tax at 22% flat: $9.90
  • Oregon income tax at 8% flat: $3.60
  • Social Security at 6.2%: $2.79
  • Medicare at 1.45%: $0.65
  • Statewide Transit Tax at 0.1%: $0.05
  • Paid Leave Oregon at 0.6%: $0.27

Total withholding: about $17.26, leaving roughly $27.74 in take-home pay. That is an effective withholding rate near 38%. Your actual tax liability is likely lower, because the federal 22% flat rate overshoots most workers’ real marginal brackets. The difference comes back as a refund when you file.

Oregon’s Federal Tax Subtraction Softens the Bill

Oregon lets you subtract a portion of the federal income tax you paid from your Oregon taxable income, a feature most other states do not offer. For 2025 the maximum subtraction is $8,500 for single and married-filing-jointly filers ($4,250 for married filing separately). The subtraction phases out at higher incomes: for single filers it begins shrinking at $125,000 of federal adjusted gross income and disappears above $145,000, and for joint filers the phase-out starts at $250,000.10Oregon Department of Revenue. 2025 Publication OR-17, Oregon Individual Income Tax Guide

More overtime means more federal tax paid, which can increase the Oregon subtraction if you are below the phase-out. It will not erase the state’s bite, but it does mean the effective Oregon rate is a bit lower than the posted bracket rate.

How to Reduce Over-Withholding If It Happens Every Year

If you work overtime regularly and get large refunds every spring, your payroll is pulling more than it needs to all year long. A few steps can shift that money back into your current checks.

On the federal side, file an updated Form W-4 with your employer. Step 4(b) lets you claim deductions beyond the standard deduction, which reduces withholding. The IRS Tax Withholding Estimator at irs.gov/W4App is built for workers whose income varies during the year; plugging in expected overtime gives a more realistic picture.11Internal Revenue Service. Form W-4

Oregon has a separate state form, Form OR-W-4, that works independently from the federal one. You can adjust state withholding without touching your federal settings. Do not cut too deep. Owing a balance plus underpayment penalties at filing is worse than a refund.

Reconciling It All on Form OR-40

The real tax bill gets settled when you file Form OR-40. Oregon calculates tax on your actual annual taxable income from every source and applies the bracket rates to the total, not to each paycheck. If payroll over-withheld during busy overtime stretches, which the aggregate method almost always does, the excess comes back as a refund. If you used the 8% flat state method and your real marginal rate turned out to be 8.75% or 9.9%, you may owe a small balance. Withholding is an estimate all year; the annual return is where the federal tax subtraction, any credits, and your actual bracket placement finally decide what the overtime cost you.