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Why did my refund drop when I entered a second W-2?

SOLVEDby TurboTax2228Updated 1 month ago

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. You don’t get this deduction with each W-2 you enter, just the first one. This means your second W-2 will appear to be taxed more, but what’s really happening is that you’re getting a more accurate picture of your income.

Let’s say you have two W-2s from two different employers with identical amounts: each has $16,000 in wages and $1,600 in federal withholdings. Your gross income for the year is $32,000, with total withholdings of $3,200.

After you enter the first W-2, we subtract the Standard Deduction of $12,550 from your wages of $16,000, for a total taxable income (so far) of $3,450. This puts you in the lowest tax bracket (10%). We subtract the $345 tax from the $1,600 withholding, and you see a $1,255 refund in the Refund Monitor. So far, so good.

Now you enter the second W-2. Because you got $1,255 back on the first W-2, you expect to get another $1,255 for the second one, increasing your refund to $2,510. But much to your dismay, the refund drops a couple hundred bucks to $1,065 after entering the second W-2. How could this happen? We’ll explain.

After entering the second W-2, your gross income increased to $32,000, but the Standard Deduction of $12,550 remained the same. Your taxable income (gross income minus the Standard Deduction) increased to $19,450, which also bumped you up to the 12% tax bracket. Per the IRS tax table, the tax on $19,450 for a single filer like you is $2,135. Subtracted from the $3,200 withholdings, you should get $1,065 back—just like TurboTax says.

Married couples will also see this occur when a spouse's W-2 is added to the return. You'll get the standard deduction of $25,100 for married couples with the first W-2 you enter, but no additional deduction when you add the second W-2. Since each spouse would only get a standard deduction of $12,550 if they filed separately, it's uncommon for couples where both spouses work to be better off if they file separately instead of jointly.

Your refund will also depend on how much your employers withheld in taxes during the year based on the W-4 they have for you. This can vary between employers and result in not having enough tax withheld to cover your total income for the year. You can ask your employers to increase your withholding to avoid this issue in the future.

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.

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