Why Overtime Isn't 100% Tax-Free
The 2026 federal proposals (like OBBBA) target Federal Income Tax, but mandatory payroll taxes (FICA) generally remain in place.
What is FICA?
FICA stands for the Federal Insurance Contributions Act. Unlike the federal income tax, which goes into the general government fund, FICA taxes are "payroll taxes" specifically earmarked for Social Security and Medicare.
Social Security
6.2%
Funds retirement and disability benefits for millions of Americans.
Medicare
1.45%
Funds health insurance for people aged 65 and older.
Total FICA Contribution: 7.65%
Why FICA Still Applies to Overtime
Legislative proposals like the One Big Beautiful Bill Act focus on the "Federal Income Tax" component of your paycheck. Because FICA taxes are the primary funding source for the Social Security trust fund, they are almost always excluded from tax-cut proposals to ensure the stability of retirement benefits.
Key takeaway:
When a law says "Tax-Free Overtime," it nearly always means "Federal Income Tax Exempt Overtime." You will likely still see FICA withheld from every dollar of overtime you earn in 2026.
The Math: $100 in Overtime Earnings
If you earn $100 in overtime, here is how the 2026 federal estimate breaks down:
| Tax Type | Current Rate (Est.) | Amount Withheld |
|---|---|---|
| Federal Income Tax | 0% (Proposed) | $0.00 |
| FICA (Social Security/Medicare) | 7.65% | $7.65 |
| Estimated Take-Home* | $92.35 |
*Does not include state income taxes, which vary by location.
Ready for a real estimate?
Our calculator specifically accounts for federal income tax savings while reminding you of the FICA and State taxes that still apply.