How to Calculate Overtime Pay (and the 2025 Overtime Deduction)

To calculate overtime pay, multiply your regular rate of pay by 1.5, then multiply that by the hours you worked over 40 in the workweek. At $20 an hour for 46 hours, that’s 40 × $20 = $800 of regular pay, plus 6 × $30 = $180 of overtime, for $980 in all. The hard part is the regular rate: bonuses, shift pay and second rates change it, and getting it wrong is the most common overtime mistake.

This guide covers the federal rule, the cases that trip people up, the few states with daily overtime, and what the 2025 federal overtime deduction changes on your tax return and your paycheck.

How to calculate overtime pay: the short answer

The overtime pay formula

Federal law, the FLSA, sets the rule for most US employees: at least one and a half times the regular rate for every hour over 40 in a workweek.

Overtime pay = regular rate × 1.5 × overtime hours

1. Add up the hours in the workweek. Only hours actually worked count. Paid holidays, vacation and sick days don’t, even though you’re paid for them.
2. Subtract 40. What’s left is overtime. 46 hours is 6 overtime hours.
3. Find the regular rate. For a plain hourly worker, it’s the hourly wage. For anyone with bonuses, shift pay or two rates, see below.
4. Multiply. Regular pay for the first 40 hours, plus 1.5 × the rate for the rest.

Two things the formula doesn’t let you do. You can’t average two weeks: 30 hours one week and 50 the next is 10 hours of overtime, even though the two weeks average 40. And your employer can’t swap overtime for time off later, unless you work for a state or local government, which can give comp time under its own rules.

Overtime pay at common hourly rates

These are gross pay, before tax. To see what an overtime week leaves in your account, enter the hours in a paycheck calculator: it pays overtime at 1.5 times your rate and takes out federal tax, Social Security and Medicare.

Finding the regular rate: where overtime goes wrong

The regular rate isn’t always your hourly wage. Under the FLSA it’s everything you earned for the work in that week, divided by the hours worked. Some payments go in and some stay out.

With a bonus

You earn $20 an hour, work 46 hours, and get a $92 production bonus for the week.

1. Straight-time pay: 46 × $20 = $920, plus the $92 bonus = $1,012.
2. Regular rate: $1,012 ÷ 46 = $22.00 an hour.
3. Overtime premium: the hours are already paid once at straight time, so only the extra half is added. 6 × $22.00 × 0.5 = $66.
4. Total: $1,012 + $66 = $1,078.

Paying overtime on $20 and adding the bonus on top gives $1,072, $6 short. On one week it’s small. On a year of weekly bonuses it adds up to over $300.

If the bonus covers a month or a quarter, the employer can pay it first and work out the extra overtime later, by spreading the bonus over the weeks it was earned.

With two pay rates

You work 30 hours at $18 and 15 hours at $24 in the same week, for the same employer.

1. Straight-time pay: 30 × $18 + 15 × $24 = $540 + $360 = $900.
2. Regular rate: $900 ÷ 45 = $20.00, a weighted average.
3. Overtime premium: 5 × $20.00 × 0.5 = $50.
4. Total: $950.

Your employer can instead pay overtime at 1.5 times the rate of the job you were doing in the overtime hours, but only if you agreed to that before the work was done.

On a salary

A salary doesn’t make you exempt. You also have to be paid at least $684 a week ($35,568 a year), the federal threshold the Department of Labor enforces after the 2024 increase was struck down, and your duties have to meet an exemption test. Many salaried workers are owed overtime.

For a non-exempt salary meant to cover a set number of hours, divide by those hours. $900 for a 40-hour week is $22.50 an hour. Work 45 hours and you’re owed 5 × $33.75 = $168.75 more, for $1,068.75.

If the salary is meant to cover whatever hours you work, a “fluctuating workweek” arrangement, the rule is different: the rate changes every week and only the half-time premium is added. It needs a clear agreement, and some states, California among them, don’t allow it.

States with daily overtime

The federal rule is a floor. When state law is more generous, your employer pays whichever gives you more. A handful of states count overtime by the day:

Here’s where it matters. Four 10-hour days at $20 is 40 hours: no federal overtime, $800. In California, each day has 2 hours of daily overtime, so it’s 32 × $20 + 8 × $30 = $880. Federal and daily overtime hours aren’t counted twice; you’re paid on whichever count gives more.

Rules change and have exceptions, such as alternative workweek schedules in California. Check your state labor department before relying on a figure.

The federal overtime deduction (2025 to 2028)

Public Law 119-21, passed in July 2025, created a federal income tax deduction for qualified overtime. It’s often called “no tax on overtime.” That’s not quite what it does.

• Only the extra half. At $20 an hour, overtime is paid at $30. The deduction covers the $10, not the $30.
• Only FLSA overtime. Overtime required by federal law, which usually means hours over 40. California’s daily overtime in the example above doesn’t count, because federal law doesn’t require it. Nor does overtime your employer pays by choice or under a union contract when federal law wouldn’t.
• Capped. Up to $12,500 a year, or $25,000 on a joint return.
• An income limit. The cap shrinks by $100 for every $1,000 of modified adjusted gross income over $150,000 ($300,000 joint).
• Federal income tax only. Social Security and Medicare, 7.65% between them, still come out of every overtime dollar. State tax depends on your state.
• Years 2025 to 2028. It’s a deduction on your return, so you get it whether you itemize or not. You need a valid Social Security number, and married couples must file jointly.

What it’s worth

You earn $20 an hour and work 5 hours of overtime a week for 50 weeks.

1. Overtime paid: 250 hours × $30 = $7,500.
2. Qualified overtime (the extra half): 250 × $10 = $2,500. That’s the deduction.
3. Tax saved: $2,500 × your top federal rate. In the 12% bracket that’s $300 a year; in the 22% bracket, $550.

Near the income limit, a single filer with $160,000 of modified adjusted gross income is $10,000 over. That’s 10 × $100 = $1,000 off the cap, so the most they can deduct is $11,500. Someone with $2,500 of qualified overtime still deducts all of it. Our guide to how to calculate MAGI shows how that income figure is worked out.

On your paycheck

The deduction is claimed on your tax return. Your employer doesn’t take less tax out of overtime automatically. If you’d rather have the money through the year than as a refund, the 2026 Form W-4 has a worksheet for the overtime, tips and senior deductions, and you can give your employer a new one.

Our paycheck calculators show the difference that makes, per paycheck: Texas, Michigan, Indiana, Maryland, Georgia, Washington and Arkansas. Michigan has also added a state deduction for overtime, which the Michigan calculator includes.

For 2025, employers didn’t have to report qualified overtime separately on the W-2. If yours didn’t, you can work it out from your pay stubs: the overtime hours times half your regular rate.

Common mistakes

• Leaving the bonus out. A promised bonus raises the regular rate, and so the overtime.
• Averaging weeks. Each workweek stands alone, even on a two-week pay period.
• Counting paid time off. A holiday you didn’t work doesn’t count toward 40 hours, unless your employer or a contract says so.
• Assuming salary means exempt. Pay level and duties decide that, not how you’re paid.
• Deducting the whole overtime hour. Only the premium half qualifies for the federal deduction.
• Deducting state-only overtime. Daily overtime under state law doesn’t qualify unless federal law also required it.

Frequently asked questions

How do you calculate time and a half?

Multiply your hourly rate by 1.5. At $18 an hour, time and a half is $27. Multiply that by the overtime hours and add it to your regular pay for the first 40 hours.

Is overtime calculated weekly or biweekly?

Weekly. Even if you’re paid every two weeks, each workweek is counted on its own. 35 hours and 45 hours in a two-week pay period means 5 hours of overtime.

Do paid holidays count toward overtime?

Not under federal law. Overtime is based on hours actually worked, so a paid holiday, vacation or sick day doesn’t count toward 40, unless your employer’s policy or a contract says it does.

Is overtime taxed more?

No. Overtime is taxed at the same rates as other pay. A big overtime check can have more withheld because payroll treats it as if you earned that much every paycheck, but the tax evens out when you file your return. From 2025, part of it may be deductible.

Is overtime tax-free now?

No. For 2025 to 2028, the extra half of FLSA overtime can be deducted from federal taxable income, up to $12,500. The rest of the overtime pay is taxed normally, and Social Security and Medicare still apply to all of it.

Sources

• US Department of Labor, Wage and Hour Division: Fact Sheet #23, Overtime Pay Requirements of the FLSA, and Fact Sheet #56C, Bonuses under the FLSA.
• 29 CFR Part 778, Overtime Compensation (regular rate, workweek, two rates and fluctuating workweek).
• US Department of Labor, Fact Sheet #17A, exemption salary level of $684 a week.
• Public Law 119-21, section 70202, the deduction for qualified overtime compensation, and IRS guidance on the deduction.
• California Labor Code section 510; Alaska Statutes 23.10.060; Nevada Revised Statutes 608.018; Colorado COMPS Order #39.

Checked 5 November 2026. This guide explains general rules and isn’t legal or tax advice. If you think you’re owed overtime, your state labor department or the Wage and Hour Division can help, at no cost.