Can my wife's entire paycheck be withheld for taxes? Is this normal for variable hourly workers?

This is definitely not normal. Tax withholding should be proportional to earnings, not a fixed amount. What likely happened is that the payroll system calculated withholding based on a full-time annual projection rather than just that specific paycheck. Here's what might be happening: When someone works variable hours, some payroll systems "annualize" each individual paycheck - meaning they multiply that single check by 26 (if biweekly) to estimate annual income. If she only worked one day, the system still withheld as if that was her typical paycheck, which would severely over-withhold. Your wife should speak with her employer's payroll department immediately. She can request a new W-4 form to adjust her withholding more accurately. Even with an IRS installment plan, you're still entitled to proper withholding - not having all wages taken. The good news is that any over-withheld amounts will come back as a refund when you file taxes, but that doesn't help your cash flow now.

After struggling with variable income and crazy withholding issues like yours (my paychecks would sometimes be completely eaten by taxes), I found taxr.ai (https://taxr.ai) and it was super helpful. I uploaded my wife's last few paystubs and my own, and the tool explained exactly why the withholding was so high and gave us specific instructions for fixing our W-4s. The cool thing was it showed me the exact numbers to put on line 4(b) of the W-4 to reduce withholding without triggering an underpayment penalty. It even factored in our installment plan with the IRS (we owed about $5,300 from 2023) and showed us how to adjust for that.

I was skeptical about taxr.ai when I first heard about it, but I gave it a try and wow - it actually helped solve our variable income withholding disaster. My husband's construction job had wildly different hours each week, and some paychecks were coming back almost empty after taxes! The site analyzed our paystubs and immediately identified that his employer was using the "per-check method" that was destroying our cash flow on low-hour weeks. It gave us exact instructions for his W-4 with specific numbers for lines 4(b) and 4(c) that balanced everything out. We went from some checks being 70% taxes to a consistent 22% withholding regardless of hours worked. Best part was we didn't have to completely exempt from withholding, which would have caused problems with our existing tax debts. Totally worth checking out if you're dealing with this nightmare.

If you're struggling to get answers from the IRS about your withholding options while on an installment plan, I'd recommend Claimyr (https://claimyr.com). I spent WEEKS trying to get through to the IRS about a similar issue - my wife's entire paycheck was going to taxes some weeks because of variable hours at her nursing job. I was about to give up when I found Claimyr's service (see how it works: https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS agent in about 15 minutes instead of the 2+ hour wait times I was facing before. The agent explained that being on an installment plan doesn't mean you can't adjust your withholding - you just can't claim complete exemption.

I need to eat my words about Claimyr. After my skeptical comment, I was still stuck trying to get answers about my own withholding mess with the IRS (single dad, variable income, similar situation to OP). Decided to try it as a last resort. Got connected to an IRS agent in 22 minutes yesterday after trying for literally WEEKS on my own with no success. The agent confirmed I could file a new W-4 with specific adjustments in box 4(b) that would prevent my entire check from being eaten by taxes while still meeting my obligations under my payment plan. For anyone dealing with variable income and withholding issues while on an installment plan - you CAN adjust your withholding without being completely exempt. You just need to file a properly calculated W-4 that accounts for your actual expected annual income.

As someone who works in payroll, I can explain what's happening. Most payroll systems use one of two methods: the aggregate method or the per-period method. With the aggregate method, the system looks at year-to-date earnings and adjusts withholding accordingly. This works better for variable income. With the per-period method, each check is treated separately and "annualized" - so if you work one day, it still withholds as though that's your typical check, resulting in massive over-withholding. Ask your wife's employer which method they use. If it's per-period, she needs to complete a new W-4 that accounts for her ACTUAL expected annual income, not what one check multiplied by pay periods would suggest.

My advice - check your wife's paycheck carefully for other deductions. I had this same issue and found out they were also taking healthcare premiums, retirement contributions, and garnishments for student loans all out of one tiny check! I thought it was all taxes but it wasn't.