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Usually more income = more tax = less refund. Your withholding didn't increase enough to cover the tax due. Or some credits you got are reduced because you had more income.
That "refund monitor" in the corner of your screen changes as you enter your information. You cannot take anything it displays seriously until ALL of your information has been entered. When you entered your unemployment you entered more taxable income. More income = more tax. And even if you had tax withheld from it, it may not have been enough. Check all of your amounts very carefully again to make sure you entered it all correctly.
For 2020 the first $10,200 of unemployment was exempted from federal tax by Congress, but that was only for 2020. For 2021, it is all taxable on your federal return and perhaps also on your state return.
I had the same thing happen to me and trying to figure out why
Federal tax rates are typically 12% to 22%, so if you average them to 17%, you may have to add as much as $12,000 to generate $2,000 worth of federal income tax. However, you also have to factor in how much tax you had withheld, and if you were entitled to an earned income credit, that can go down precipitously as your income goes up, so that could have a major negative affect on your refund. So, it may have been a combination of things that made your refund decrease.
You can compare your tax return to last year's form 1040 to see if anything seems to be off, however.
You can view your form 1040 while working in the online version of TurboTax by following these steps:
While working on your return in the Federal section of TurboTax:
1. Choose the Tax Tools icon on your left menu bar
2. Tools
3. View Tax Summary
4. Choose the Preview my 1040 on your left menu bar
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