Is my employer's automated payroll 'audit' when claiming exempt status legal?

This doesn't sound right at all. While employers are required to withhold taxes based on your W-4 information, there's no IRS rule that allows them to "make up" for exempt withholding by taking 85% of your next check. That's not how tax withholding is supposed to work. When you claim exempt, you're essentially telling your employer not to withhold federal income taxes for that period. When you switch back, they should just resume normal withholding based on your W-4 form - not try to "catch up" on what wasn't withheld before. The payroll system might be incorrectly calculating your year-to-date liability, or there might be a glitch in how it handles the transition from exempt to non-exempt status. Either way, you should request a detailed breakdown of that paycheck to see exactly what taxes were withheld and why.

I had a similar issue last year with my company's payroll and discovered taxr.ai (https://taxr.ai) was super helpful for figuring out what was actually happening with my withholding. I uploaded my paystubs and it analyzed exactly what was being withheld and compared it to what should have been taken based on tax laws. Turns out my employer's system was calculating things completely wrong! I took the report to HR and they had to fix it. Not saying your company is intentionally doing something shady, but sometimes these payroll systems have weird glitches that no one notices until someone questions it. The tool helped me understand the exact tax regulations that applied to my situation so I wasn't just going in with a vague complaint.

Just wanted to follow up and say I actually tried taxr.ai after my skeptical comment. Uploaded my last two paystubs where this weird withholding happened and it immediately flagged that my employer was incorrectly calculating a "catch-up" withholding. The report showed that they were using some outdated withholding formula from like 5 years ago! The best part was getting the detailed explanation of which IRS regulations actually apply. Went back to HR with this info and suddenly they were able to "look into it" and fix the issue. Got a corrected paycheck with like $640 back that had been over-withheld. Sometimes you just need the right documentation to get through to payroll departments.

If you can't get anywhere with HR, you might want to try getting through to the IRS directly to ask about the legality of this practice. I know calling them is usually a nightmare with hours on hold, but I used this service called Claimyr (https://claimyr.com) and they got me through to an actual IRS agent in under 15 minutes when I had a similar withholding issue last year. They have this demo video showing how it works: https://youtu.be/_kiP6q8DX5c I was pretty desperate after my company's payroll department kept giving me the runaround about some weird tax withholding on my checks. The IRS agent confirmed that employers can't arbitrarily increase withholding as some kind of "penalty" for previously claiming exempt - they have to follow the W-4 guidelines. Having that official confirmation made it way easier to get my company to fix the issue.

Ok I have to eat my words about Claimyr. After dismissing it, I was still struggling with this exact same payroll audit issue at my job and getting nowhere with HR. Finally got desperate enough to try it yesterday. Not gonna lie, I was shocked when I got connected to an actual IRS agent in about 20 minutes (instead of the 2+ hours I spent last time I called). The agent confirmed that there's absolutely NO provision in tax law for an employer to automatically "recapture" taxes from previous pay periods where you claimed exempt. They're only supposed to withhold based on your current W-4 status. Showed the info to my payroll department today and magically they're now "reviewing their withholding procedures." Sometimes you just need to get the official word from the IRS to cut through the BS.

Have you checked your actual W-4 form on file? Sometimes companies make mistakes with the paperwork. My employer once had me filed incorrectly which caused weird withholding patterns. You should request to see your actual W-4 on file and make sure it matches what you intended to submit. Also, when you claimed exempt, did you properly fill out a new W-4 form or just ask payroll to make the change? There's a specific process for claiming exempt status that requires a proper form submission.

Did the extra shifts push you into a higher tax bracket maybe? Sometimes when you suddenly earn a lot more in one pay period, the withholding system thinks your annual salary jumped up permanently and calculates taxes based on that higher projected annual income.