Does overtime pay affect Social Security and Medicare withholding on the W-2?
Executive summary
Overtime pay is treated the same as regular wages for Social Security and Medicare withholding: employers must withhold FICA taxes on overtime until an employee reaches the annual Social Security wage base, and Medicare withholding continues without a wage cap — with an extra 0.9% Additional Medicare Tax withheld once wages exceed $200,000 — even though a recent federal law carved out an income-tax deduction for certain overtime earnings (not a payroll-tax exemption) [1] [2] [3].
1. Overtime is not exempt from payroll taxes — context and recent headlines
Despite media attention about a “No Tax on Overtime” policy that affects federal income tax reporting, every authoritative payroll and IRS-facing source explains that this change does not alter how employers withhold Social Security and Medicare; payroll guidance and employer advisories stress that overtime remains subject to Social Security and Medicare withholding and that payroll processes and W-2 reporting were unchanged for the transition year [1] [2] [4].
2. Social Security withholding: overtime counts toward the wage base cap
Social Security tax (the 6.2% employee share) applies only to wages up to the annual Social Security taxable wage base; overtime increases an employee’s total wages and therefore counts toward that cap — for 2026 that cap is $184,500 — so overtime can increase the amount withheld until the cap is reached, after which no further Social Security tax is due for the year [5] [3] [6].
3. Medicare withholding: no wage cap and the additional 0.9% threshold
Medicare withholding is different: the standard 1.45% Medicare tax has no maximum wage base and applies to all covered wages including overtime [3]. In addition, wages in excess of $200,000 trigger the employer’s duty to withhold an extra 0.9% Additional Medicare Tax from the employee’s pay — that withholding is tied to the calendar-year wage total and employers must begin withholding once pay exceeds the $200,000 threshold regardless of the employee’s filing status [7] [6].
4. W-2 reporting and what payroll departments will do differently (or not)
For tax-year reporting, employers will continue to report total wages and FICA taxes on the W-2 as before; recent rule changes that create a deduction for qualified overtime affect taxable income calculations on employees’ returns, not the mechanics of FICA withholding or how wages are reported on W-2/941 for 2025–2026 transition guidance — payroll vendors and tax advisers have emphasized that overtime and tips remain subject to regular withholding for federal, state, Social Security, and Medicare, and that employers must prepare systems for new reporting codes without changing the underlying FICA treatment [4] [1] [8].
5. Practical implications for workers and employers — the takeaway
Practically, receiving more overtime generally increases the dollar amount withheld for Social Security and Medicare in the pay period because overtime raises taxable wages; Social Security withholding will stop after the employee’s year-to-date wages exceed the wage base (e.g., $184,500 in 2026), while Medicare withholding continues and may include the additional 0.9% once wages pass $200,000 in a calendar year — employers and payroll providers are the ones implementing these withholdings and must track year-to-date totals to apply the caps and thresholds correctly [7] [6] [5]. Employers’ communications and payroll-industry pieces tend to highlight operational continuity (and warn about system updates for new reporting lines), which can create confusion between a new income-tax deduction for qualifying overtime and the unchanged rules for payroll taxes [2] [4].