"Seems a little confusing to me that I am getting a refund but I owe money."
Which is it? Are you owing money or getting a refund?
As I noted above, the amount withheld on any given form (W-2, W-2G, 1099-G, SSA-1099, and a slew of others) does not pay the tax on the income reported on that form; instead, all withholding goes into a pot from which your final tax will be paid. Thus any individual withholding may be too little or too much - withholdings are always an approximation of what you would owe from this income (and sometimes not a very close approximation).
And to be clear, the 8606 does not calculate tax, all it does is determine if you have additional taxable income.
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