Why was I taxed significantly more on my second sales commission paycheck?

Wait so does that mean they're taking too much out overall? Will OP get that extra money back when they file taxes next year? Seems unfair to have such a big jump.

That makes a lot of sense now. So it's not actually a hard threshold, but rather the payroll system doing some rough projections. If I understand correctly, this doesn't necessarily mean I'll owe more taxes overall at the end of the year, right? It's just about how much is being withheld now? I'm also wondering if increasing my traditional pre-tax 401k contributions would help reduce this withholding effect when I have these larger commission checks?

That's exactly right - it's just about withholding, not your final tax bill. At tax time, everything gets recalculated based on your actual annual income, regardless of how it was distributed throughout the year. So yes, you'll likely get some of that money back when you file. Increasing pre-tax 401k contributions would definitely help with this issue. Since those contributions reduce your taxable income, they'll lower the amount withheld for taxes on each paycheck. This is especially effective for those occasional larger paychecks where the withholding calculation would otherwise push you into a higher projected bracket.

Does it handle multiple income sources? I've got a main job plus a side business and I can never figure out if I'm withholding the right amounts.

Sounds interesting but I'm skeptical. How secure is it? I'm not comfortable uploading my financial documents to some random website. Also, can it actually recommend specific W-4 adjustments or just general advice?

It actually does handle multiple income sources really well. You can add your W-2 job plus 1099 income, and it calculates the appropriate estimated tax payments for the self-employment portion while accounting for your W-2 withholding. Regarding security, they use bank-level encryption and don't store your actual documents after analysis - just the extracted data that you approve. And yes, it gives specific W-4 recommendations, including exactly what to put on line 4(b) for additional withholding or 4(c) for reduced withholding based on your specific situation.

How does this actually work? Do they just call the IRS for you or do they have some special connection? Seems too good to be true tbh.

Yeah right. I've tried everything to get through to the IRS and nothing works. There's no way this service can do anything special that I couldn't do myself. The IRS phone system is completely broken by design.

They don't call the IRS for you - they have a system that navigates the IRS phone tree and holds your spot in line. When an agent is about to pick up, you get a call and are connected directly to the agent. It's basically a technological way to avoid sitting on hold yourself for hours. No special connection or inside track - they're just using technology to work around the hold time problem. I was skeptical too, but after wasting entire afternoons on hold previously, I figured it was worth a shot. Was connected to an actual IRS employee who answered all my questions about variable income withholding.

I've been considering that switch actually. Do you know if there's an optimal balance between Roth and traditional contributions for someone with variable income? My base salary is pretty consistent but these commission checks can range wildly from $5k to $20k depending on the month.

For highly variable income like yours, many financial advisors suggest a hybrid approach. Use traditional pre-tax contributions during your high commission months to reduce the tax hit when you're temporarily pushed into higher brackets. Then use Roth contributions during lower income months when you're in a lower tax bracket. The general principle is to make traditional contributions when you're in a higher bracket than you expect to be in during retirement, and Roth contributions when you're in a lower bracket. With your variable income, you're effectively moving between brackets throughout the year, so you can strategically use both types of contributions.

I adjusted mine last year for my sales commissions. Put $200 on line 4(c) for reduced withholding. Ended up about right at tax time - got a small refund of $300. You have to be careful though and maybe do some math based on your total expected annual income. The IRS has a tax withholding estimator on their website that's pretty helpful.