Klaus, based on your numbers ($145k expected vs $118k actual Box 1), that $27k difference is likely almost entirely from pre-tax deductions. Here's what probably happened: If you're maxing out your 401(k) at $23,000 for 2024, that alone accounts for most of the difference. Add in health insurance premiums (could easily be $3,000-6,000 annually), HSA contributions if you have one (up to $4,300 for individual coverage), and any other pre-tax benefits, and you'll hit that $27k gap pretty quickly. Your calculation method is correct - Year 2 W-2 should show Year 2 base salary plus Year 1 bonus paid in Year 2. The "missing" money isn't actually missing - it's just that your W-2 Box 1 shows what's federally taxable after all pre-tax deductions, not your gross earnings. Check your final December paystub for Year 2. It should show year-to-date totals for all your pre-tax deductions. Add those up and subtract from your gross pay ($145k) - that should match your Box 1 exactly. This will give you the peace of mind that everything is correct for your financial planning.

Great question Klaus! This is actually a really common source of confusion. Your W-2 Box 1 shows your taxable wages after pre-tax deductions, not your gross income. The most likely culprits for that $27,000 difference are: - 401(k) contributions (2024 limit is $23,000 or $30,500 if 50+) - Health insurance premiums - HSA contributions (up to $4,300 individual/$8,550 family for 2024) - Dental/vision insurance premiums - Flexible spending account contributions To verify everything is correct, grab your last paystub from December 2024 - it should show year-to-date totals for all deductions. Add up all your pre-tax deductions and subtract that from your gross pay ($145,000). That number should match your W-2 Box 1 exactly. This is actually good news for your financial planning - those pre-tax deductions are saving you money on taxes! Just make sure to use the Box 1 amount ($118,000) rather than gross income when calculating your tax liability for planning purposes.

I'm dealing with the exact same situation - trading income with huge monthly variations and completely lost with these worksheets! Reading through everyone's responses has been incredibly helpful. @Oliver Cheng - your explanation about the Worksheet 2-8 error really cleared things up. It's honestly ridiculous that the IRS publications have these kinds of mistakes in them. So just to confirm: Worksheet 2-8 result goes on Line 11 of Worksheet 2-7, not where the instructions say? @Ashley Simian - for the AGI estimate issue, I'm wondering if there's a "safe" approach? Like, would it be better to overestimate or underestimate your expected income when you're really not sure? I'm worried about either underpaying and getting penalties or overpaying and tying up too much cash. The tools mentioned here (taxr.ai and Claimyr) sound promising, though I'm always cautious about new services. Has anyone compared the calculations from these tools to doing it manually to verify they're accurate? Also curious - when you're recalculating each quarter with updated info, do you adjust the remaining quarters' payments based on your new projections, or just calculate each quarter independently?

@Nina Chan - Great questions! Yes, Oliver is correct about the Worksheet 2-8 error - the result goes on Line 11 of Worksheet 2-7, not where the instructions indicate. I've seen this confusion trip up many traders. For the AGI estimation approach, I generally recommend being slightly conservative (estimating a bit higher rather than lower) for a few reasons: 1) It helps ensure you meet safe harbor requirements, 2) You'll get any overpayment back as a refund, and 3) Underpayment penalties are more painful than temporarily tying up cash. The key is "slightly" - don't go crazy with overestimation. Regarding the quarterly recalculations, you adjust going forward based on your updated projections. Each quarter, you look at your cumulative income through that period and recalculate what your total annual tax should be, then determine if you need to adjust future payments. It's not completely independent - you're always working with the year-to-date picture. One thing I'll add that others haven't mentioned: keep detailed records of your calculations and reasoning for each quarter. If you do get questioned by the IRS later, having documentation of your good faith effort to comply using the annualized method can be very helpful. The method exists specifically for people like traders with uneven income, so don't feel bad about using it properly.

Make sure you check if any part of that severance was designated as a "supplemental wage" - things like severance are sometimes withheld at a flat 22% federal rate, which might not be enough depending on your tax bracket. I got hit with a surprise tax bill because of this! Also, did they give you any outplacement services or career counseling as part of the package? Those can be non-taxable benefits if structured properly.

One thing that might help put your mind at ease is to run a quick tax projection now rather than waiting until filing season. Since you have both W-2s already, you can estimate your total tax liability and see if you're on track or need to make adjustments. If you find out you're significantly under-withheld, you might want to consider making an estimated tax payment before the end of the year to avoid underpayment penalties. The IRS generally wants you to pay at least 90% of your current year tax liability or 100% of last year's (110% if your prior year AGI was over $150k). Also, since you got rehired at the same company, double-check that they didn't accidentally combine your severance with regular wages on your main W-2. Sometimes payroll systems can get confused when there's a termination followed by a rehire, and you want to make sure everything is reported correctly.

I was confused by the same thing last year! Just wanted to add that the reason this is all so confusing is that the $5,000 FSA limit hasn't been updated in decades while childcare costs have skyrocketed. It's ridiculous that the tax code hasn't kept up with real costs. For my family, even using both the FSA and the tax credit, we only get tax relief on about a third of what we actually spend on childcare. I wish they'd update these limits to reflect what childcare actually costs in 2025!

This is such a helpful discussion! I'm in a similar boat but with slightly different numbers. I have one child and spent $8,000 on daycare last year. I put the full $5,000 into my dependent care FSA, so I have $3,000 in remaining expenses. From what I'm understanding here, since I only have one qualifying child, my maximum eligible expenses for the Child and Dependent Care Credit would be $3,000. But I need to subtract my $5,000 FSA contribution from that $3,000 limit... which would give me a negative number? Does this mean I can't claim ANY additional expenses for the tax credit since my FSA already exceeded the $3,000 single-child limit? Or am I misunderstanding how this works?

Another trucker here - just to add a real example: I bought my Peterbilt for $175,000 last year. My CPA took Section 179 deduction for the full amount on last year's taxes. This year I'm only deducting the INTEREST portion of my loan payments which is about $12,000 for the year. If I deducted the full loan payments (around $36,000/year including principal), that would definitely be double dipping since I already deducted the truck's value through depreciation.

I'm an owner-operator and just wanted to add that this confusion is super common. Like half the guys at my terminal are doing their taxes wrong. Remember: - The TRUCK (asset) = depreciable - The INTEREST on loan = deductible expense - The PRINCIPAL on loan = NOT deductible (that's what depreciation covers) - REPAIRS/MAINTENANCE = always deductible The IRS isn't dumb - they know what a loan payment includes and they'll catch double-dipping eventually!