Why did my refund drop when I entered another W-2?
More often than not, you'll see your refund go down after entering a second W-2. This is very common and nothing to be concerned about.
When you first start your return in TurboTax, we've already applied your standard deduction and personal exemption, which means many people will see an artificially high refund after entering that first W-2.
As you enter additional income, your refund is likely to decrease, sometimes quite dramatically. Let's take a quick look at how that happens.
Jose, a single filer, worked for two employers in 2015 and received two W-2 forms. Each W-2 has $16,000 in wages with $1,000 in withholdings.
After entering his first W-2, Jose's income (so far) is $16,000 minus his personal exemption ($4,000) and the standard deduction ($6,300) for a taxable income of $5,700. The IRS tax table says that the tax on $5,700 for a single filer is $570, and when you subtract this amount from his $1,000 withholding, you get a $430 refund, which is the amount Jose sees in his refund monitor.
Now Jose enters his second W-2. He got $430 back on his first W-2, so he figures he should get another $430 back after entering the second W-2, doubling his refund to $860. But much to his surprise, he now owes $794! How could this happen? Let's go behind the scenes to take another look.
Jose's total income has now increased to $32,000. After subtracting his $4,000 exemption and the $6,300 standard deduction, his taxable income is now $21,700. Per the IRS tax table, the tax on $21,700 for a single filer is $2,794. However, he only withheld a total of $2,000 from his earnings, which means he owes another $794 – just like TurboTax says.
The good news
It's still early in the game, and you haven't even gotten to the Deductions & Credits section yet. Your refund will continue to fluctuate as you proceed through your return.
Watching your refund drop can be disconcerting, but keep in mind that your refund amount gets more accurate as you go along and will stop changing only once you've entered all of your information.