Shift Differentials and Bonuses Raise Your Tax-Free Overtime

The deduction is the premium over the FLSA regular rate, not over your base rate. The regular rate is all straight-time pay plus nondiscretionary bonuses, shift differentials and similar pay for the workweek, divided by all hours worked (29 CFR part 778).

Example (29 CFR 778.110(b))

46 hours at $12 plus a $46 production bonus: $598 ÷ 46 = $13 regular rate. The premium is 6 hours × $6.50 = $39, not 6 × $6 = $36. Two rates in one week are averaged by hours (778.115). Holiday pay, PTO and discretionary bonuses stay out.

Last reviewed 2026-10-29. General information, not tax advice. Your W-2 and a tax professional come first.