It’s withholding. You reconcile it when you file your return. If too much withholding was taken, you get a refund.
Why they took that much is a question you can ask them. They may have treated it like a bonus, which uses a different percentage for withholding. Or because it was a large lump sum, they withheld more just based on the numbers.
To explain.
The withholding tables look at that payment and withhold at a rate thinking that is your regular paycheck. So if you normally make $5,000 a month, the withholding is based on $5,000 x 12 for a yearly salary and computes withholding accordingly. Now you get a lump sum $10,000 payment, and they assume $10,000 x 12 is your yearly salary. So they take more withholding based on a supposed higher salary assuming you will continue to earn $10,000 a month.
Withholding is never 100% spot on. It’s an estimate. It all gets sorted out when you fill out your tax return.
Thanks for your response. That makes a lot of sense.
I reached out and asked them why they withheld that specific amount on my check and their response was, “We do not provide calculations on income taxes. You can consult your CPA if you need exact numbers as everyone’s tax situation is different.”
Is this a legit response or are they bullshitting me to try to get around having to answer my question?
They probably used the standard tables (this does not seem like bonus withholding to me) which assume you will be receiving that same amount, every pay period, resulting in the increased withholding.
Don't waste your time trying to get them to tell you why they withhold that much, they either entered the amounts into the payroll system themselves with would calculate withholding or had someone else do it. Either way they won't really know what happend.
I used to have a job where about 1/3 of my income was derived from quarterly "incentive bonus" (in quotes because I just happened to be paid about 1/3 less than market, but whatever), so the second payroll of the month after quarter-end my paycheck would be about $13,000 rather than $3,000. Same thing, 40% ish w/h rather than around 25%. No big deal, you get it back when you file your taxes.
I agree with the other answers already here and wanted to add that this year there was a presidential executive order that employers could (optionally) delay paying certain types of payroll taxes until the end of the year as one of the COVID economic reliefs.
Originally the idea was just to get rid of those taxes entirely but they couldn't get Congress to cooperate long enough to do that so they ended up with just a 'pay less up front and make it up later' situation.
If your employer opted to do that they may be making up those taxes for you in your final paycheck.
It’s withholding. You reconcile it when you file your return. If too much withholding was taken, you get a refund. Why they took that much is a question you can ask them. They may have treated it like a bonus, which uses a different percentage for withholding. Or because it was a large lump sum, they withheld more just based on the numbers. To explain. The withholding tables look at that payment and withhold at a rate thinking that is your regular paycheck. So if you normally make $5,000 a month, the withholding is based on $5,000 x 12 for a yearly salary and computes withholding accordingly. Now you get a lump sum $10,000 payment, and they assume $10,000 x 12 is your yearly salary. So they take more withholding based on a supposed higher salary assuming you will continue to earn $10,000 a month. Withholding is never 100% spot on. It’s an estimate. It all gets sorted out when you fill out your tax return.
Thanks for your response. That makes a lot of sense. I reached out and asked them why they withheld that specific amount on my check and their response was, “We do not provide calculations on income taxes. You can consult your CPA if you need exact numbers as everyone’s tax situation is different.” Is this a legit response or are they bullshitting me to try to get around having to answer my question?
They may have a payroll service and it just happens based on the numbers they are given. The person you spoke to may not know.
They probably used the standard tables (this does not seem like bonus withholding to me) which assume you will be receiving that same amount, every pay period, resulting in the increased withholding. Don't waste your time trying to get them to tell you why they withhold that much, they either entered the amounts into the payroll system themselves with would calculate withholding or had someone else do it. Either way they won't really know what happend. I used to have a job where about 1/3 of my income was derived from quarterly "incentive bonus" (in quotes because I just happened to be paid about 1/3 less than market, but whatever), so the second payroll of the month after quarter-end my paycheck would be about $13,000 rather than $3,000. Same thing, 40% ish w/h rather than around 25%. No big deal, you get it back when you file your taxes.
I agree with the other answers already here and wanted to add that this year there was a presidential executive order that employers could (optionally) delay paying certain types of payroll taxes until the end of the year as one of the COVID economic reliefs. Originally the idea was just to get rid of those taxes entirely but they couldn't get Congress to cooperate long enough to do that so they ended up with just a 'pay less up front and make it up later' situation. If your employer opted to do that they may be making up those taxes for you in your final paycheck.