When I add my W2, my refund goes up. When I add my wife's W2 and take mine off, the refund goes up as well. When both are added, it goes down. Why?

[Carl]

THe more income you have, the more taxes you will pay. Understand that just entering your W-2 is usually not even close to what your tax liability will be. You're barely 1% into the program. You need to complete your tax return in it's entirety. That number that shows your refund or tax due is absolutely meaningless until you finish your return. The fact that number changes as you go, really only tells you one thing; the program is working and did something.

[hanesi]

I did finish my return.  We owe alot ... and dont know why because we both paid our taxes like normal.   I went back through the refund and found that either her or my W2 alone would give us positive refund, but when put together, they create negative refund by alot ... and we dont know why

[hanesi]

Can someone please help me figure out why this is happening?

[hanesi]

So ... would you recommend filing seperately since our W2s combined seem to drop our refund lower than what any of the refunds would be if one W2 or the other were used by itself?

[macuser_22]

Only way to know for sure is to do test returns both ways but joint is usually (but not always) better.

If you file MFS (Married Filing Separately) keep in mind that there are several limitations to MFS.  Married filing Jointly is usually the better way to file.
 
A few of those limitations are: (see IRS Pub 17 for the full list

<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p17/ch02.html#en_US_2016_publink1000170782">https://www.irs.gov/pub...>

1. Your tax rate generally is higher than on a joint return.
2. Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return.
3. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. For more information about these expenses, the credit, and the exclusion, see chapter 32.
4. You cannot take the earned income credit.
5. You cannot take the exclusion or credit for adoption expenses in most cases.
6. You cannot take the education credits (the American opportunity credit and lifetime learning credit) or the deduction for student loan interest.
7. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.
8. If you lived with your spouse at any time during the tax year:
   a. You cannot claim the credit for the elderly or the disabled, and
   b. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
9. The following credits and deductions are reduced at income levels half those for a joint return:
   a. The child tax credit,
   b. The retirement savings contributions credit,
   c. The deduction for personal exemptions, and
   d. Itemized deductions.
10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

- If you live in a community property state you must allocate community income between both spouses..
-
- Community property states.   If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. See Publication 555. <a rel="nofollow" target="_blank" href="http://www.irs.gov/publications/p555/index.html">http://www.irs.gov/publications/p555/index.html</a>

 
See this TurboTax article for help with this.
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/1894449-married-filing-jointly-vs-married-filing-separately">https...>

<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/1901162-married-filing-separately-in-community-property-states">ht...>

[hanesi]

I guess Ill try both ways, but I will never understand how we suddenly owe a lot after increasing what we paid in taxes out of our paychecks and basically worked what we always worked for hours.  Thanks anyways

[macuser_22]

Some people call that the "marriage penalty" and some couples just live together unmarried so they can file single because of the tax increase when adding two incomes together or the even worse results (usually) filing separately.

Hope it works out for you.  ("Been there, done that" for almost 50 years and wouldn't change it because of the "marriage penalty":)

[macuser_22]

Each employer withholds as if that was the only income, but when added together you move into a higher tax bracket so more withholding (or paying estimated tax) is necessary.  When both spouses work they might need to claim single and not exemptions to avoid paying additions tax or even having an addition amount withheld.  This is very common with two incomes.

See this FAQ:
Why did my refund drop when I entered another W-2?
https://ttlc.intuit.com/replies/3798403