What the current rules say about overtime pay and taxes

Overtime pay itself is not taxed differently than regular pay — the IRS taxes all wages the same way, whether you earned them at your regular rate or at time-and-a-half. What has changed recently is not the tax treatment of overtime, but rather which workers are required to receive overtime pay at all.

In September 2024, the U.S. Department of Labor raised the salary threshold for overtime exemption. This means more salaried workers now may have access to for overtime pay under federal law. The threshold — the salary level below which employers must pay overtime — increased from $35,568 per year to $58,656 per year. Workers earning less than that threshold must receive overtime pay when they work more than 40 hours per week, regardless of their job title.

This change affects who gets overtime, not how overtime is taxed once earned. Overtime income is subject to the same federal income tax, Social Security tax, and Medicare tax as any other wages.

Key Takeaways

  • The Department of Labor raised the overtime salary threshold in 2024, meaning more salaried workers now must receive overtime pay by law.
  • Overtime pay is taxed at the same rate as regular wages — there is no separate overtime tax or tax break.
  • The threshold may change again depending on future policy decisions, so your overtime status can shift if your salary or job classification changes.
  • If you are unsure whether your job qualifies for overtime under current rules, your employer's payroll department or your state labor board can tell you.

How the 2024 overtime threshold change works

The new $58,656 annual threshold (or $1,128 per week) applies to most salaried workers in most industries. If you earn less than that amount and your job duties do not fall into a narrow exempt category — such as executive, administrative, or professional roles — your employer is required by federal law to pay you overtime for hours over 40 per week.

Some states have set their own thresholds higher than the federal level. California, for example, has different rules. Check your state's labor department website to see whether state law gives you stronger overtime protections than federal law.

This threshold is not permanent. The Department of Labor can adjust it again in the future based on economic conditions and policy decisions. If a new administration changes the rule, the threshold could go up, stay the same, or potentially be lowered — though lowering it would reduce the number of workers may have access to to overtime.

What overtime pay means for your taxes

When you earn overtime, that money is added to your regular wages and taxed as ordinary income. Your employer withholds federal income tax, Social Security tax (6.2 percent), and Medicare tax (1.45 percent) from your overtime pay just as they do from your base pay. There is no overtime tax rate — the tax rate depends on your total annual income and tax bracket, not on whether the money came from overtime hours.

If you work significant overtime during a year, your total income may push you into a higher tax bracket, which means a larger percentage of your total income goes to federal taxes. This is true for all additional income, not just overtime. Your employer cannot avoid withholding taxes from overtime pay, and you cannot opt out of paying taxes on it.

Proposed changes and what might happen next

There have been discussions about potentially rolling back the 2024 threshold increase or preventing future increases. Any change would require action by the Department of Labor or Congress. If the threshold were lowered, fewer salaried workers would be may have access to to overtime pay, but this would not change how overtime is taxed — it would only change who receives it.

As of now, the $58,656 threshold is in effect. Monitor your state labor department and the federal Department of Labor website if you want to track whether this rule changes. Changes to overtime rules typically take effect on a specific date announced in advance, giving employers time to adjust payroll systems.

How to know if you are covered by overtime rules

You are covered by federal overtime rules if you earn less than the current threshold ($58,656 annually as of 2024) and your job duties do not fit into an exempt category. Exempt categories include executive positions (managing others), administrative positions (using independent judgment on important matters), and certain professional roles (such as licensed attorneys or engineers).

Your job title alone does not determine whether you are exempt. An employer cannot call you a "manager" and avoid paying overtime if your actual duties are not managerial. If you believe you should be receiving overtime but are not, contact your state's labor board or the U.S. Department of Labor Wage and Hour Division. They can review your situation and tell you what you are owed under current law.

Frequently Asked Questions

Does overtime pay get taxed at a higher rate than regular pay?

No. Overtime income is taxed at the same rate as your regular wages. The tax rate depends on your total annual income and tax bracket, not on whether the money came from overtime hours. If overtime pushes your total income higher, you may move into a higher tax bracket overall, but that affects all your income, not just the overtime portion.

If the overtime threshold changes, will I lose overtime pay?

Only if the threshold is lowered and your salary is above the new threshold. If the threshold stays the same or goes up, your overtime status does not change. If it is lowered and you earn above the new threshold, you would no longer be may have access to to overtime under federal law, though your state may still require it.

Can my employer refuse to pay overtime taxes?

No. Your employer must withhold taxes from overtime pay just as they do from regular pay. Taxes on wages are mandatory — neither you nor your employer can opt out. If your employer is not withholding taxes from your overtime pay, report it to your state labor board or the IRS.

What if I am self-employed or a contractor — do overtime rules apply to me?

Overtime rules apply only to employees, not to self-employed people or independent contractors. If you are self-employed, you set your own rates and hours. You still owe self-employment tax (about 15.3 percent combined Social Security and Medicare), but there is no overtime requirement.

Where can I learn about my state has different overtime rules?

Visit your state's labor department website — usually listed as "Department of Labor" or "Division of Labor Standards." Many states have thresholds higher than the federal level or different rules for specific industries. Your state rules apply if they are stronger than federal rules.