The employees where I work each received a $400 bonus in the form of an am ex gift card. We then received a memo that the employer was withholding $150 from our next pay check to cover the 'gift tax withholding taxes' This is approximately 38%! I read that 25% is the max or the bonus amount should be added to the current wages and taxed accordingly.(IRS Pub 15) Can the employer do this?

What state do you live in? The tax is 25% for federal and 6.2% for Social Security and 1.45% for Medicare. If you live in a taxable state or have any local or SDI taxes those also apply.