As a FICA exempt (student work) adding my W-2 half's my Fed & State refund. Wife has a regular job. Is there something we have to do so we don't get dinged by this?

[dnmatijas]

I am entering my W-2 and I was a FICA exempt employee (Student working at the school I go to). Social Security and Medicare were not withheld from my paycheck. However when I  enter in my W-2 it reduces my Federal and State refund by half. My wife has a regular job  and taxes were withheld as normal. Is there something special I have to do so we don't get dinged by this?

[MinhT1]

No.

This is how tax works. Your W-2 earnings are taxable, and if there is not enough withholding taxes, your tax refund is reduced.

[dnmatijas]

That seems odd given that the wages in question are exempt. Why would they count towards taxable income for those categories? 

[DoninGA]

The wages are exempt for Social Security and Medicare taxes, Not for federal income taxes.

[MinhT1]

Wages paid for certain student work are exempt from FICA taxes but are taxable for income tax.

Please read this IRS document for more information.