You’ve just crushed a sixty-hour week. You’re exhausted, your coffee machine is crying for mercy, and all you can think about is that sweet, sweet time-and-a-half hitting your bank account. Then the payslip arrives. You look at the "Net Pay" line and honestly, it feels like a punch in the gut. Where did it all go? You start wondering if there is some magical threshold—a point where the government finally backs off. You find yourself asking: when does tax on overtime stop?
The short, somewhat annoying answer? It doesn't.
Uncle Sam doesn't have a "rest easy" button for people working extra hours. There is no point during the year, or within a specific pay period, where the IRS says, "You know what? You've worked hard enough, keep the rest." If you earn a dollar in the United States through labor, the tax man is going to take a bite out of it. Period. But while the tax itself never actually stops, the rate at which you are taxed can fluctuate wildly, leading to that common (and mostly wrong) myth that overtime "isn't worth it."
The Myth of Losing Money to Overtime
I hear this in breakrooms all the time. Someone says, "I stopped taking extra shifts because the taxes put me in a higher bracket and I actually made less money."
That is mathematically impossible.
We have a progressive tax system. Think of it like a series of buckets. The first bucket of money you earn is taxed at 10%. Once that bucket is full, the next dollar goes into the 12% bucket. Even if your overtime pushes you into the 22% or 24% bracket, only the dollars in that specific bucket are taxed at the higher rate. Your original earnings are still taxed at the lower rates. You are always, always taking home more total cash by working more hours, even if the government’s slice of that specific extra hour is bigger.
The confusion usually stems from withholding.
Payroll software is often a bit "dumb." If you normally make $1,000 a week but pick up a massive amount of overtime and make $3,000 in a single week, the software assumes you make $3,000 every week. It projects an annual income of $156,000 instead of your actual $52,000. Suddenly, it starts withholding taxes as if you’re a high-roller. This is why your take-home pay on an overtime check looks so small. You haven't necessarily lost that money to a permanent tax; you’ve just overpaid your "security deposit" to the IRS for the year. You’ll likely get a chunk of that back as a refund in April.
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Social Security: The Only Place Tax Actually Stops
While income tax is a lifelong companion, there is one specific area where the bleeding actually stops. It’s called the Social Security Wage Base Limit.
For 2024, this limit is $168,600. For 2025, it’s projected to climb to $176,100.
This is the only time the answer to "when does tax on overtime stop" is actually a specific number. Once your total earnings for the year—base pay plus all that overtime—hit that cap, your employer stops taking out the 6.2% Social Security tax. Your paycheck suddenly gets a 6.2% "raise" for the rest of the year.
Of course, most people working hourly overtime aren't hitting $170k a year. But if you are a high-earner or a specialized contractor pulling massive hours, that’s your finish line. Medicare tax, however, never stops. In fact, if you earn over $200,000 (for individuals), the Medicare tax actually increases by 0.9% thanks to the Additional Medicare Tax.
Why Your Bonus and Overtime Feel Different
Ever notice how a bonus check feels even "heavier" with taxes than overtime?
The IRS classifies bonuses as "supplemental wages." Employers often use a flat 22% withholding rate for these. Overtime, however, is usually bundled into your regular gross pay. Because overtime is just "more of the same" type of income, it gets subjected to the standard aggregate withholding method.
If you’re wondering when the tax on overtime stops because you feel like you're being penalized for working hard, you need to look at your W-4. If you’re consistently getting huge refunds every year, you’re basically giving the government an interest-free loan. You can adjust your withholdings to keep more of that overtime cash in your pocket every Friday instead of waiting for a refund check ten months later.
The Impact of State Taxes
Don't forget the state. Unless you live in a place like Florida, Texas, or Washington, your state is taking a cut too. Some states have flat taxes (like Illinois or Michigan), meaning every dollar of overtime is taxed at the exact same percentage as your first dollar. Other states, like California or New York, follow the federal progressive model. In those states, your overtime can definitely feel the squeeze of a higher state tax bracket.
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The "Overtime Trap" and Your Benefits
There’s another layer to this. It isn't just about the IRS.
When you work more, your Gross Income goes up. This can have a "cliff effect" on certain government benefits or tax credits. If your overtime pay pushes your Modified Adjusted Gross Income (MAGI) above certain limits, you might lose:
- The Earned Income Tax Credit (EITC).
- Child Tax Credit phases.
- Eligibility for subsidized health insurance through the Marketplace (ACA).
In these rare cases, working too much overtime can actually result in a net loss of household value. It’s not that the tax "stopped" or "started"—it’s that your increased income disqualified you from a different bucket of money.
Real World Example: The Nurse's Paycheck
Let’s look at a hypothetical (but very real) scenario. Sarah is a nurse making $40 an hour. She works 40 hours a week ($1,600 gross). Her effective tax rate might be around 15% after deductions.
One month, she works double shifts to cover for a colleague. She clocks 20 hours of overtime at $60 an hour ($1,200 extra).
Her total gross for the week is $2,800.
The payroll system sees that $2,800 and panics. It thinks, "Sarah is now a $145,000-a-year earner!" It jumps her withholding rate from 15% to maybe 22%.
Sarah sees a massive chunk of that $1,200 disappear. She's annoyed. She thinks the tax on overtime is higher. It isn't. At the end of the year, when her total income is tallied, she will likely be in the 12% or 22% bracket overall. The "extra" tax she paid on that big week will be calculated against her actual annual total, and the excess will be returned to her as a tax refund.
How to Keep More of Your Overtime
If you want to mitigate the "sting" of taxes on your extra hours, you have a few levers to pull. You can’t stop the tax, but you can control where the money goes.
- Increase 401(k) Contributions: If you know you're going to have a high-overtime month, you can often hop into your payroll portal and bump up your pre-tax retirement contribution. This lowers your taxable income. You're still "losing" the money from your take-home pay, but you’re paying it to Future You instead of the IRS.
- HSA Contributions: Similar to the 401(k), money put into a Health Savings Account is "above the line." It reduces your taxable income dollar-for-dollar.
- Check Your Exemptions: If you are married or have kids, ensure your W-4 accurately reflects your life. Many people leave it on "Single" or "0" because they like a big refund, but that makes overtime shifts feel much more painful than they actually are.
Is Overtime Actually Worth It?
Economically? Yes. Always.
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Psychologically? That’s up to you.
When people ask when the tax on overtime stops, they’re usually looking for a reason to justify the exhaustion. If you are working so much that you move from a 12% bracket to a 22% bracket, you are still keeping 78 cents of every overtime dollar (minus FICA and state). That is still a win.
The only "stop" is the Social Security cap, and for the vast majority of workers, that’s a distant mountain peak they won't hit. For everyone else, the tax is just a part of the grind.
Actionable Steps to Manage Overtime Taxes
- Review your last three payslips. Look at the percentage of tax withheld on a "normal" week versus an "overtime" week. If the jump is more than 5-7%, your withholding is likely too aggressive.
- Use the IRS Tax Withholding Estimator. Do this once a quarter. It takes 10 minutes and tells you exactly how to adjust your W-4 so you don't get a massive bill or a massive (and useless) refund.
- Track your year-to-date (YTD) earnings. If you are approaching the $168,600 Social Security cap, prepare for a "pay bump" in the final months of the year.
- Consult a tax pro if you're borderline on credits. If you rely on the EITC or ACA subsidies, calculate your "tipping point" where overtime becomes a liability. Sometimes, saying "no" to that last shift saves you $5,000 in health insurance premiums.
Tax on overtime is a permanent fixture of the working life. It doesn't "stop" based on hours worked or a specific date on the calendar. Understanding that the "loss" you see on your paycheck is often just a temporary overpayment is the first step toward not hating your extra shifts. Keep working, keep earning, but keep an eye on your W-4 so you—not the government—control the flow of your hard-earned cash.