Whether overtime is taxed at a higher rate or not depends on if the employer pays it combined with the regular pay, according to the IRS. Another factor to consider is how much overtime pay was received.
Overtime may have a flat 25 percent federal withholding applied if the employer does not include it with regular pay. If the overtime is included with regular pay, small amounts of overtime won't change the withholding rate, but larger amounts might. The withholding calculation presumes a worker makes the same amount for each pay period throughout the year. More overtime will make it appear the worker has a higher annual income and more federal tax will be withheld, according to the Cato Institute.