<prompt> Human: Hi, I recently had the fortune of being granted a large bonus for my performance in 2013. Since my income tax bracket is lower than the universal federal income tax on bonus payouts, I thought Id save some money and allocate my entire bonus check to my 401k and turn off my contributions for the rest of the year. My bonus was 18,600 18000 base bonus, 600 for working overtime. Im aware that this amount is subject to Medicare, Social Security, California income tax, etc... However, according to my paystub, 16,100 went to my 401k well short of the maximum, and I was still hit with a federal income tax of 621. What gives? Shouldnt that 621 still have gone towards fleshing out my 401K because I have not hit the contribution ceiling yet? UPDATE: Thanks for the feedback and input, everyone. My employer clarified whats going on here. In so many words, the 401k doesnt reduce taxable wages for SS, Medicare, SDI, etc... These taxes still need to be withheld, and if they were to allocate the full bonus amount to 401k, there would be not be sufficient wages to cover those withholdings. As a result, some of the bonus needs to be set aside, separate from the 401k deduction, to cover those 3. The funds set aside are consequently subject to State and Fed income tax. Assistant: Since my income tax bracket is lower than the universal federal income tax on bonus payouts, I thought Id save some money and allocate my entire bonus check to my 401kJust so you know, bonuses are not taxed at a different rate than your other income. It will simply be added to your income for the year, so it will be taxed at your marginal rate.Human: Not true for the way my company operates. Per the IRS: If you pay supplemental wages separately or combine them in a single payment and specify the amount of each, the federal income tax withholding method depends partly on whether you withhold income tax from your employees regular wages.If you withheld income tax from an employees regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages.Withhold a flat 25 no other percentage allowed. etc...I got a separate pay stub for the bonus, completely independent of my normal pay check.  <response>: Withholding is not the same as tax liability. If the employer withheld too much, youll get a refund. Bonuses, like regular wages, are taxed as ordinary income.The reason that the withholding is higher is that the income was unexpected and thus not accounted for when the employer withholds per your W-4 election. 