&gt; extrapolates the current pay period out into the full calendar year and then deducts taxes at that rate<p>For US Federal taxes, thats generally how its supposed to work - see [1], and for some exceptions [2].<p>&gt; small gross increase [...] resulting in a net decrease in pay for that pay period<p>If a payroll system is doing that, its not for the reason you cite.  US tax rates are such that an increase in gross pay always results in an increase in net pay, and that doesn&#x27;t change when you divide gross and net by 24 (or however many pay periods you have each year).<p>[1]: <a href="https:&#x2F;&#x2F;www.irs.gov&#x2F;publications&#x2F;p15&#x2F;ar02.html#en_US_2015_publink1000254685" rel="nofollow">https:&#x2F;&#x2F;www.irs.gov&#x2F;publications&#x2F;p15&#x2F;ar02.html#en_US_2015_pu...</a><p>[2]: <a href="https:&#x2F;&#x2F;www.irs.gov&#x2F;publications&#x2F;p15a&#x2F;ar02.html#en_US_2015_publink1000236700" rel="nofollow">https:&#x2F;&#x2F;www.irs.gov&#x2F;publications&#x2F;p15a&#x2F;ar02.html#en_US_2015_p...</a>