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This question already has an answer here:

I'm in tax bracket A.

My employer takes out the appropriate taxes reach pay for my tax bracket.

During a special pay period, my pay is much higher than normal. If my pay was ALWAYS what it is in this particular pay period, I would be in a higher tax bracket (B).

The amount of "extra" alone does not actually push me into B.

My employer takes taxes out during this period as if my pay during that period was what I got paid every pay period, resulting in a much higher chunk of my pay going to taxes than it should.

Is my employer correct to do so?

This is in the USA, just to be clear.

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marked as duplicate by MD-Tech, Nathan L united-states Aug 30 at 17:21

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.

  • Now that's a good question I'd like to know the answer to as well... – Musuyajin Aug 30 at 16:03
  • Related answer: money.stackexchange.com/a/85149/36669 – yoozer8 Aug 30 at 16:07
  • Read the linked duplicates to get a sense for why it works that way. In the end it won't matter - if you get more taken out than what you actually owe when you file, you'll get a refund. If less is taken out you'll owe some. It's normal; I wouldn't stress over it too much, – D Stanley Aug 30 at 16:11
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    "Resulting in a much higher chunk of my pay going to taxes than it should." That is only known at the end of the year, the approach they take is proper and works well in the vast majority of situations. – Hart CO Aug 30 at 16:33
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TL;DR - Withholding from regular paychecks is done at effective tax rate as if you had that paycheck for the whole year.

Example: Your gross paycheck is $5000 monthly. That is $60K annually. Income tax on $60K is $12K (simplified and using made-up numbers). That is $1000 income tax withheld from each paycheck.

Then if in some other month your gross paycheck is $8000, it is extrapolated to $96K annually, ignoring that you were not actually paid $8000 every month for the whole year. Income tax on $96K is $24K (again using made-up numbers for the sake of this explanation). Divided by 12 pay periods per year, this amounts to $2000 income tax withheld from this particular paycheck.

Note that this works differently with bonus paychecks - income tax is withheld at your marginal rate from them.

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  • So then that's money you'd get back when you do your income taxes, I suppose? – Ethan The Brave Aug 30 at 16:26
  • You'll owe more tax, or you'll get a refund - depends on your actual tax liability vs. what was withheld. – void_ptr Aug 30 at 16:30
  • The last sentence is not correct - bonuses are withheld at a fixed rate depending on the size of the bonus, not according to your tax bracket (which isn't known until you file and incorporate all income and deductions). – D Stanley Aug 30 at 16:41
  • @DStanley Could be. For me it always turned out being exactly my marginal rate, both federal and state. But I haven't read IRS instructions. I'll leave it to someone more knowledgeable to correct and elaborate. – void_ptr Aug 30 at 16:50

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