I hit my reputation cap earlier today at 215 rep on the day, then I offered a bounty, which dropped my reputation to +165. Now all upvotes I am receiving are not adding reputation, even though I am now under the repcap limit. Is this supposed to work like this, or is it a bug? If it is supposed to work like this, it is highly confusing.
Because the cap is based on total rep gained from upvotes per day (possibly also suggested edits if your rep were lower) not net rep gain per day.
Reducing your reputation by any means does not alter the fact that you have gained the rep cap worth of upvotes.
Some things, like being awarded a bounty, or having rep returned due to serial voting reversal will grant you the reputation regardless of hitting the rep cap.