“Why is nearly half of my overtime pay gone to taxes?”

It’s a question many physicians quietly ask after picking up an extra weekend shift. The paycheck appears strong on paper, yet the take-home amount feels disproportionately smaller. For physicians practicing in high-tax states such as New York, withholding on additional income can approach 40%–45% once federal, state, and payroll taxes are applied.

The reaction is often confusion. The more important issue, however, is what follows. Because this is not simply a tax question; it is a systems question.

The marginal-rate problem

In workforce planning, overtime is often treated as a straightforward solution: Offer additional pay, and physicians will fill coverage gaps. But that assumption overlooks a fundamental economic principle — the difference between average income and marginal income.

Physicians’ base salaries are already positioned in higher tax brackets. Additional income from overtime, call coverage, or incentive pay is taxed at marginal rates, not average rates. At the federal level, marginal rates can reach up to 37%, with additional state and local taxes layered on top, as outlined by the IRS. In states such as New York, the combined effect of federal, state, and local taxation can significantly increase withholding on supplemental income.

In practice, this means that an additional shift may be subject to effective withholding approaching 40%–45%, particularly when payroll systems treat overtime as supplemental wages. The result is not simply a smaller paycheck. It is a fundamentally different calculation.

Beyond tax brackets: The hidden cliffs

Taxation alone does not fully explain the shift in decision-making. Additional income can also affect income-driven repayment plans for student loans, as defined by the U.S. Department of Education. It may influence eligibility for certain deductions and credits, as described by the IRS guidance on credits and deductions, and can trigger additional Medicare payroll surtaxes at higher income thresholds.

For many physicians, these considerations are not abstract. According to the AAMC, the median medical school debt exceeds $200,000. As income rises, repayment obligations and financial thresholds shift accordingly.

The question becomes less about gross compensation and more about net impact. What appears worthwhile before taxes and adjustments may feel materially different after they are applied.

A workforce issue, not a motivation issue

This dynamic extends beyond individual finances. Healthcare systems rely heavily on overtime to maintain adequate staffing. At the same time, the U.S. faces a projected physician shortage of up to 86,000 by 2036.

When physicians decline additional shifts, the response is often framed as a question of engagement. But when the marginal value of extra work is reduced, the behavior is not surprising. It is rational.

The system assumes a linear relationship between compensation and participation. In reality, physicians respond to marginal incentives — and those incentives are often diminished by structural factors.

The downstream effects

When internal overtime becomes less attractive, systems adapt. Many turn to locum tenens coverage or short-term staffing solutions, which can increase costs and reduce continuity of care. Others redistribute workload across existing teams, further contributing to strain.

At the same time, physician burnout remains a significant concern. A Mayo Clinic Proceedings study, co-authored by AMA, University of Colorado School of Medicine, and Stanford Medicine, who regularly measure physician burnout rates, gauged at least one symptom of burnout at 45.2% in physicians in 2023. Additional shifts, especially when perceived as inefficient or unsustainable, can exacerbate this trend.

The issue is not isolated to compensation. It is tied to long-term workforce stability.

The ethical balance

Medicine carries an expectation of service. Physicians routinely step in when coverage is needed, often without hesitation. However, sustainability is an equally important consideration.

Additional work comes with trade-offs: time away from family, reduced recovery, and cumulative fatigue. When the financial return on that effort diminishes, those trade-offs become more difficult to justify.

The decision to decline an extra shift is often interpreted as disengagement. In many cases, it reflects an effort to preserve long-term capacity and maintain balance within an already demanding profession.

A structural misalignment

At its core, this issue reflects a misalignment between compensation design and real-world economics. Incentive structures are typically built around gross figures. Physicians, however, make decisions based on after-tax income, opportunity cost, and sustainability.

A shift that appears attractive in nominal terms may be far less compelling once all factors are considered. When that gap persists, participation declines.

Rethinking the approach

Addressing this challenge does not require changes in tax policy. It requires a more realistic approach to incentive design. Health systems may need to consider how after-tax income affects decision-making, how flexibility and nonfinancial incentives influence participation, and how compensation models can better align with physician behavior.

If additional coverage is essential, it must be structured in a way physicians are actually willing to accept.

Compensation models should move beyond nominal pay and reflect after-tax value and opportunity cost. Physicians do not make decisions based on gross figures alone. Per-shift bonuses, while visible, are often insufficient when marginal income is heavily taxed and disruptive to workflow. More effective approaches include retention-based incentives, deferred compensation, or bundled arrangements tied to sustained participation rather than isolated shifts.

At the same time, nonfinancial incentives should be treated as core strategy. Flexibility, schedule control, and protected recovery time consistently influence participation more than incremental increases in pay. When systems rely on overtime as a primary staffing solution, they are often compensating for deeper operational gaps. Physician burnout and staffing instability carry measurable financial consequences, including turnover and reduced productivity.

Finally, transparency matters. Physicians are more likely to engage when compensation and workload expectations are clearly understood in real terms. Clear alignment between effort, reward, and sustainability reduces friction without increasing cost.

Recognizing these dynamics is not about lowering expectations. It is about aligning incentives with reality. Because when systems depend on physicians to do more, but structure that work in a way that discourages participation, the issue is not effort.

It is design.

The bottom line

When physicians decline overtime, it is often not a lack of commitment but a rational calculation. In high-tax environments, federal, state, and payroll taxes can significantly reduce the value of additional income. That reality forces physicians to weigh the marginal financial benefit against the personal cost — time, recovery, and long-term sustainability.

If health systems want durable workforce engagement, compensation models must account for real-world economics, not just nominal pay. Because when working more consistently feels like it pays less, the issue is not motivation. It is design.

What would make overtime truly worth it for you? Share in the comments.