If you work a part-time job, pick up seasonal shifts, or earn overtime or holiday pay, you’ve probably had this experience: you work extra hours, get a bigger paycheck than usual, and then feel disappointed when taxes take a much bigger bite than expected.
Many workers assume something went wrong — either payroll made a mistake or the government “taxed holiday pay more.” In reality, what’s happening is usually a withholding issue, not a higher tax rate.
Here’s how holiday pay and overtime are handled, why your paycheck can look worse than expected, and what it all means when you file your tax return.
Holiday Pay and Overtime Are Not Taxed at a Higher Rate
First, an important clarification: holiday pay, overtime pay, and seasonal wages are not taxed at a higher rate than your regular wages.
At the end of the year, the IRS (and your state, if applicable) looks at your total wages for the year, not how or when you earned them. Regular hours, overtime, holiday pay, and seasonal income are all combined and taxed under the same rules.
The confusion comes from how taxes are withheld from each paycheck, not how they’re ultimately calculated.
Why Withholding Feels Higher on Holiday or Overtime Pay
Employers use different withholding methods depending on how the extra pay is issued. Each can make your take-home pay look smaller than expected.
Flat-Rate Withholding on Separate Checks
When extra pay is issued on a separate paycheck — often for bonuses or incentive pay — federal income tax is typically withheld at a flat 22% rate, with state withholding applied separately.
This method works reasonably well for many taxpayers, but it can result in over-withholding if your actual tax bracket is lower than 22%, or under-withholding if your income puts you in a higher bracket.
Withholding as If the Pay Is Permanent
When overtime or holiday pay appears on the same paycheck as regular wages, payroll systems often withhold taxes as if you earn that higher amount every pay period for the entire year.
A single high-earning week can make it look like you’re on pace for a much higher annual income, which triggers heavier withholding. This approach often leads to too much tax being withheld, especially for part-time or seasonal workers.
Employers use this method because it ensures enough tax is withheld even when income fluctuates significantly.
Why Employers Withhold This Way
From a payroll standpoint, it’s safer to over-withhold than under-withhold.
Under-withholding can leave employees with tax bills or penalties at filing time. Over-withholding usually results in a refund, which is why payroll systems are designed conservatively.
What Happens at Tax Time
At the end of the year, all wages are treated equally, regardless of whether they came from regular hours, overtime, holiday shifts, or seasonal work.
When you file your tax return, your total income is calculated, your actual tax liability is determined, and the IRS compares that amount to what was already withheld. If too much was withheld, you receive the difference as a refund.
This reconciliation process is the entire purpose of filing a tax return.
Why This Hits Part-Time and Seasonal Workers Harder
Workers with variable schedules often experience short periods of higher income. Payroll systems don’t know those increases are temporary, so withholding spikes even if annual income stays modest.
This makes holiday pay and overtime feel discouraging in the moment, even though it usually evens out later.
What You Can Do
While you generally can’t change withholding on a specific paycheck, you can take steps to reduce surprises:
• Review your W-4 if overtime or seasonal income is common
• Expect refunds if withholding spikes during peak work periods
• Plan cash flow knowing some of that money comes back at tax time
• Avoid assuming higher withholding means higher taxes overall
The Bottom Line
Holiday pay and overtime aren’t taxed more — they’re often withheld more aggressively.
If you work part-time, seasonal jobs, or pick up extra shifts, bigger paychecks can trigger heavier withholding. That doesn’t mean you owe more in the long run. When you file your return, everything is recalculated, and over-withholding often turns into a refund.
Understanding the difference between withholding and actual tax owed can help take the sting out of those holiday paychecks.