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. Here are a few reasons why that happens:

• Your total income increased. Your refund meter changes as your numbers change. When you enter a second W-2, you add more income. Generally, more income means more taxes.
• Your new total income might be in a higher tax bracket. Your second W-2 could have pushed your total income into a higher tax bracket, making it taxed at a higher marginal rate.
• Your withholding credits may not have increased enough to cover your taxes from the second job. If you have two employers, you probably filed a Form W-4 with each to withhold income tax from your wages. Review your W-4s. If you didn’t already, fill out Steps 3–4 (b) on Form W-4 for only the highest-paying job. Leave those steps blank for the other job. This will increase your chances of having enough taxes withheld from your pay to cover your tax liability.
• Your new total income may have reduced or eliminated some tax credits. The amount you receive for some credits may drop or you may no longer qualify. These may include:
  • Earned Income Credit
  • American Opportunity Tax Credit: eliminated if MAGI exceeds $90,000
  • Lifetime Learning Credit: eliminated if MAGI exceeds $90,000 
  • Child and Dependent Care Credit
  • Child Tax Credit: decreases with AGI over $200,000
  • Saver’s tax credit: eliminated if AGI exceeds $36,500
• Your new total income may affect your ability to claim certain deductions. Deductions for IRA contributions, medical expenses, and charitable contributions may all decrease when your income increases.