Why did my refund drop when I entered a second W-2?
Most people see their refund go down, sometimes by a lot, after entering a second W-2. This is because we start you off with the full standard deduction, which we subtract from the income you’ve entered so far. This usually gives you an artificially low taxable income at first, which translates to an artificially high refund. Let’s take a closer look with an example:
Let’s say Jose has two W-2s from two different employers with identical amounts: each has $16,000 in wages and $1,600 in federal withholdings. His gross income for the year is $32,000, with total withholdings of $3,200.
After he enters his first W-2, we subtract his standard deduction of $12,000 from his wages of $16,000, for a total taxable income (so far) of $4,000, which puts him in the lowest tax bracket (10%). We subtract his $400 tax from the $1,600 withholding, and Jose sees a $1,200 refund in his refund monitor. So far, so good.
Now Jose enters his second W-2. Because he got $1,200 back on his first W-2, he expects to get another $1,200 for the second one, increasing his refund to $2,400. But much to his dismay, he sees his refund drop a couple hundred bucks to $990 after entering the second W-2. How could this happen? We’ll explain.
After entering his second W-2, Jose's gross income increased to $32,000, but his standard deduction of $12,000 remained the same. His taxable income (gross income minus the standard deduction) increased to $20,000, which also bumped him up to the 12% tax bracket. Per the IRS tax table, the tax on $20,000 for a single filer like Jose is $2,210. Subtracted from his $3,200 withholdings, he should get $990 back – just like TurboTax says.
Keep in mind: The Deductions & Credits section is yet to come; we’ll walk you through it after you’ve finished entering all of your income. Your refund amount gets more accurate as you go along and will stop fluctuating once you've finished entering all of your information.
Do you have 2 jobs? If so, see this article and you are going to want to update your withholding at one of your jobs.
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