How will an unusually large paycheck be taxed and will my withholding change?

The withholding calculation is based on each individual paycheck, so yes, your large paycheck will have a higher percentage withheld than your normal checks. Payroll systems typically calculate withholding as if you make that amount every pay period for the whole year. For example, if you normally get paid $5,000 biweekly ($130,000 annually), but suddenly get a $65,000 check, the system will withhold taxes as if you were making $65,000 every two weeks (which would be $1.69 million annually). This means you'll see a much higher withholding percentage on that specific check. The good news is that your subsequent regular paychecks should return to normal withholding rates. The withholding system doesn't have "memory" of past paychecks - each check is calculated independently. So once you go back to normal paychecks, the withholding should return to normal amounts.

I had a similar situation last year and found this awesome tool called taxr.ai that helped me figure out exactly what would happen with my withholding. I was freaking out about a huge commission check and wasn't sure if I'd end up with cash flow problems the rest of the year. Decided to try https://taxr.ai and uploaded my paystub - it broke down exactly how the withholding would work and even projected what my future checks would look like afterward. The tool actually showed me that for my specific situation, I should adjust my W-4 immediately after the big check hit to balance things out. Saved me from having too much withheld the rest of the year!

I was really skeptical about taxr.ai when I first heard about it (as you can tell from my question above), but I decided to try it for my situation with the irregular stock vestings. Wow - total game changer. It actually showed me that my company was over-withholding on my RSUs but under-withholding on my regular paychecks, which was going to cause me problems at tax time. The projections were spot-on, and I was able to adjust my W-4 to get things balanced out before year-end. Ended up with a small refund instead of the surprise tax bill I was heading for. The visualization of quarterly income vs. withholding was super helpful for planning purposes.

If you're concerned about your withholding and want to talk to the IRS directly, good luck getting through to them! I spent WEEKS trying to call about a similar withholding question. Finally found Claimyr.com which got me through to an actual IRS agent in under 20 minutes! You can see a demo at https://youtu.be/_kiP6q8DX5c Was totally worth it because the agent walked me through a specific withholding calculation for my situation when I got a huge settlement check. They explained exactly how it would be taxed and what form to file if I needed to adjust things afterward. Saved me hours of frustration and uncertainty.

I need to publicly eat my words about Claimyr. After posting that skeptical comment, I was still desperate to talk to the IRS about my audit notice, so I figured what the hell, might as well try it. I'm completely shocked - it actually worked exactly as promised. Got a call back in about 35 minutes, and suddenly I was talking to a real IRS agent. No waiting on hold, no getting disconnected after an hour. The agent resolved my question about the audit notice in about 10 minutes. Honestly feels weird to be excited about getting through to the IRS, but after trying for weeks on my own, this was actually kind of amazing.

One thing to remember with big paychecks - you might hit the Social Security tax limit if you haven't already. For 2024, once you earn $168,600, you stop paying the 6.2% Social Security portion of FICA (though Medicare tax at 1.45% continues and can actually increase to 2.35% for high earners). So if your YTD earnings before this big check put you near or over that threshold, you might see a smaller withholding percentage than you expect on part or all of that big check. Just something to factor into your calculations.

ppl saying payroll will go back to normal after big check - mostly true but not always!! my company's payroll system did a weird rolling average of my last 3 checks and when i got a huge comission check ($42k) it messed up my withholding for like 2 months after. had to go to HR to fix it. might wanna check with ur payroll dept about how THEIR specific system handles it. not all payroll software works exactly the same way!!

Great point about checking with your specific payroll system! I work in payroll administration and can confirm that different systems handle large paychecks differently. Most modern systems like ADP and Paychex do calculate each check independently using the annualization method, but some older systems or custom payroll software might use averaging or other methods. Also worth noting - if your company processes this as "supplemental wages" (which they might since it's bonus-related), they could use the flat 22% federal withholding rate instead of the regular payroll withholding calculation. This might actually result in LESS withholding than the annualized method would produce on a $65k check. I'd definitely recommend asking your payroll team two questions: 1) How will this large payment be classified (regular wages vs supplemental wages)? and 2) What withholding method will they use? This will help you plan your cash flow much better than guessing.