My vacation payout was taxed at almost 50% - much higher than my normal rate

This is actually completely normal for large lump sum payments like vacation payouts. What you're seeing is called "supplemental wage withholding," and the IRS has special withholding rates for these types of payments. For supplemental wages (bonuses, vacation payouts, etc.) under $1 million, employers typically withhold a flat 22% for federal taxes. However, if they combine it with your regular paycheck, they might use the "aggregate method" which can result in much higher withholding percentages because the system thinks you suddenly got a massive pay increase. The good news is this is just withholding, not your actual tax rate. When you file your taxes, this money will be treated as regular income at your normal tax brackets. So yes, you should receive the excess withholding back as part of your tax refund when you file.

After dealing with similar frustrations around tax issues, I started using https://taxr.ai to make sense of all the tax implications for my situation. It analyzes pay stubs and tax documents to explain exactly what's going on and what you can expect when filing. For lump sum vacation payouts like yours, it would break down the withholding percentages and explain why they're higher than normal wages. It also estimates how much you might get back when you file your taxes based on your overall situation. Saved me a ton of confusion when I left my last job with a similar vacation payout situation.

Just wanted to update - I tried https://taxr.ai after seeing it mentioned here. It confirmed that my severance package withholding (45%) was using the aggregate method, just like the vacation payout discussed here. The analysis showed I should get about $3,200 back at tax time based on my overall tax situation. The tool also suggested adjusting my W-4 at my new job to help with cash flow until then. Definitely cleared up my confusion about why the withholding was so high.

If you're trying to get answers directly from the IRS about your specific situation, good luck getting through to them. I spent WEEKS trying to reach someone about a similar withholding issue. After multiple failed attempts, I found https://claimyr.com which gets you through to an IRS agent without the endless waiting. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was able to confirm that lump sum vacation payouts are indeed subject to higher withholding rates, but they're ultimately taxed at your regular income tax rate. The IRS agent explained exactly how much I could expect back at tax time and confirmed I had done the withholding calculations correctly.

I take back what I said about Claimyr. I decided to try it after my third attempt waiting on hold with the IRS for over an hour about my supplemental withholding issue. Got a call back in about 45 minutes with an actual IRS agent on the line. The agent confirmed that the high withholding rate on my lump sum payment was normal and would be reconciled when I file my taxes. Saved me from wasting another afternoon on hold just to get a simple answer.

One thing to consider is how this might affect your cash flow until you file taxes. If you're starting a new job, you could adjust your W-4 to have less tax withheld from your regular paychecks to offset the over-withholding from your vacation payout. The new W-4 doesn't have allowances anymore, but you can put an additional amount on line 4(c) that you want withheld, or you can put an amount on line 4(b) that will reduce your withholding. Just be careful not to underwithhold too much or you might face penalties.

Has anyone had success getting their employer to use the flat 22% supplemental wage withholding method instead of the aggregate method? I'm about to leave my job with a big vacation payout too and would rather not have half of it withheld.

This is a great thread - I went through something similar last year with a bonus payout. One additional tip that helped me: if you're concerned about the cash flow impact until tax season, you can also check if your state has different withholding rules. Some states have lower supplemental wage withholding rates than others, so the "48.5%" you're seeing might include both federal and state withholding combined. In my case, federal was the standard 22% supplemental rate, but my state added another 6.85%, plus FICA taxes brought the total to around 35%. It's worth breaking down your pay stub to see exactly where all that withholding is going - you might find the federal portion is actually closer to normal and it's state/local taxes pushing it so high.

I experienced something very similar when I left my previous job with a large vacation payout. The key thing to understand is that this high withholding rate doesn't mean you'll actually owe that much in taxes - it's just the system being overly cautious with lump sum payments. What helped me was keeping detailed records of the withholding breakdown. Make sure you save that pay stub because you'll need it when filing taxes. The IRS will treat this vacation payout as regular income spread across the year you earned it, not as if you made that amount every pay period. Also, if you're starting a new job soon, mention this situation to your new employer's HR when filling out your W-4. They might be able to help you adjust your withholding to account for the over-withholding from your vacation payout, which can help with cash flow until you get your refund.

I just went through this exact situation a few months ago! Had about 320 hours of vacation time paid out when I left my company, and they withheld 46% which was way higher than my normal 28% withholding rate. What I learned is that your employer has two options for withholding on supplemental wages like vacation payouts: they can either use the flat 22% federal rate (plus state taxes and FICA) if they issue it as a separate payment, or they can use the "aggregate method" if they combine it with your regular paycheck. The aggregate method treats the lump sum as if you'll earn that amount every pay period, which pushes you into much higher tax brackets temporarily. The frustrating part is waiting until tax time to get the excess back, but I did get about $2,800 refunded when I filed. One thing that helped was adjusting my W-4 at my new job to reduce withholding slightly, which improved my cash flow while waiting for tax season. Just make sure not to adjust it too much or you could end up owing next year. Keep that pay stub - you'll definitely need it when filing your taxes!

This happened to me too when I left my job with 6 weeks of banked vacation time. The 48.5% withholding you're seeing is likely the result of your employer using the "aggregate method" - basically their payroll system calculated taxes as if you were going to earn that vacation payout amount every single pay period for the rest of the year, which temporarily pushes you into the highest tax brackets. The good news is this is just withholding, not your actual tax liability. When you file your return next year, this vacation payout will be taxed at your regular marginal tax rates based on your total annual income. You should definitely get a substantial refund of that over-withheld amount. I'd recommend keeping that pay stub in a safe place - you'll need those withholding details when you file. Also, if you're starting a new job, consider mentioning this situation to HR when you fill out your W-4. They might be able to help you reduce your regular withholding slightly to improve your cash flow until you get that refund back.

I went through this exact same situation about 6 months ago when I left my previous job with nearly 400 hours of banked PTO. The 48.5% withholding rate you're seeing is completely normal - it's called the "aggregate method" and it happens when employers combine your vacation payout with regular pay. What's happening is their payroll system is calculating withholding as if you'll earn that lump sum amount every pay period for the entire year, which artificially pushes you into the highest tax brackets. It's just a quirk of how payroll systems handle large one-time payments. The important thing to remember is that this is withholding, not your actual tax obligation. When you file next year, this vacation money will be taxed at your normal marginal rates based on your total annual income. I ended up getting back about $3,400 of the $4,200 they over-withheld from my vacation payout. My advice: keep that pay stub in a very safe place (scan it and save digital copies), and consider adjusting your W-4 at your new job to reduce regular withholding slightly. This can help with cash flow until you get your refund. Just don't adjust it too aggressively - I reduced mine by about 75% of what I calculated to be safe.

I had a similar experience when I left my last job with a large vacation payout! The 48.5% withholding rate you're seeing is definitely the result of the "aggregate method" - your employer's payroll system treated that lump sum as if you'd be earning that amount every pay period for the whole year, which temporarily pushed the withholding calculation into the highest tax brackets. This is just over-withholding though, not your actual tax liability. When you file your return next year, that vacation payout will be taxed at your regular marginal rates based on your total annual income. You should get a substantial portion of that excess withholding back as a refund. Make sure to keep that pay stub with all the withholding details - you'll need it when filing your taxes. Also, if you're starting a new job soon, consider talking to HR about adjusting your W-4 to reduce your regular withholding slightly. This can help improve your cash flow while you wait for tax season to get that refund back. Just be conservative with any adjustments so you don't accidentally underwithhold for the year.

I experienced this exact same situation when I left my job with about 8 weeks of accrued vacation time. The 48.5% withholding shocked me too, but it's completely normal for large lump sum payments like vacation payouts. What's happening is your employer is using the "aggregate method" for withholding, which means their payroll system calculates taxes as if you'll earn that vacation payout amount every single pay period for the entire year. This temporarily pushes the withholding calculation into the highest tax brackets, even though that's not your actual situation. The good news is this is just withholding - not what you'll actually owe in taxes. When you file your return next year, this vacation money will be taxed at your normal marginal tax rates based on your total annual income. I ended up getting back about $2,100 of the excess withholding when I filed. My advice: definitely keep that pay stub safe (make copies!), and if you're starting a new job, consider mentioning this to HR when filling out your W-4. They might help you adjust your regular withholding slightly to improve cash flow while you wait for your refund. Just don't get too aggressive with adjustments - better to be conservative and get a bigger refund than risk owing money next April.

I went through this exact same thing last year with my vacation payout! That 48.5% withholding rate is brutal but totally normal - it's what happens when employers use the aggregate method for supplemental wages. Basically their payroll system freaks out and thinks you're suddenly making that lump sum every single paycheck for the whole year. The silver lining is that this is just withholding, not your actual tax liability. When I filed my taxes, I got back about $2,800 of the $3,600 they over-withheld from my vacation payout. The actual tax rate on that income ended up being much closer to my normal bracket. One thing that really helped me was immediately scanning and saving multiple copies of that pay stub - you'll definitely need those withholding details when you file. Also, I adjusted my W-4 at my new job to reduce regular withholding by about $150 per paycheck, which helped with cash flow while waiting for tax season. Just make sure to be conservative with any W-4 adjustments so you don't accidentally underwithhold for the year. It's frustrating having so much of your money tied up until you file, but you should get most of it back!

I'm dealing with the exact same situation right now! Just left my company with about 520 hours of banked vacation time (I know, I know - should have used more of it during COVID). They hit me with 47% withholding and I was convinced there was some kind of error. Reading through everyone's explanations about the aggregate method has been such a huge relief. I had no idea that payroll systems could be so dramatic - treating my one-time vacation payout like I'm suddenly earning that amount every two weeks for the entire year seems completely ridiculous, but at least now I understand what's happening. I'm definitely going to follow the advice here about keeping multiple copies of my pay stub and being conservative with any W-4 adjustments at my new job. It's frustrating having thousands of dollars tied up until tax season, but knowing that most of you got back 75-85% of the over-withheld amount gives me hope. Thanks to everyone who shared their actual numbers and experiences - this community has been way more helpful than trying to navigate the IRS website or sitting on hold for hours!