How come our federal tax refund was so small this year?

I know, I know...you don't want to give the government a interest free loan for a year....

Regardless, that's what we do and every year we get back anywhere from 6 to 8K. Starting Jan. 2009 my wife went back to work. When we submitted her W4 we used an IRS calculator to figure our the withholding. We have 2 kids and in 2009, our taxable income doubled. Our refund this year was only $500. What the heck is going on here? Why is this years refund so much smaller?

montag said: I know, I know...you don't want to give the government a interest free loan for a year....

Regardless, that's what we do and every year we get back anywhere from 6 to 8K. Starting Jan. 2009 my wife went back to work. When we submitted her W4 we used an IRS calculator to figure our the withholding. We have 2 kids and in 2009, our taxable income doubled. Our refund this year was only $500. What the heck is going on here? Why is this years refund so much smaller?

You answered your own question. Probably got bumped up into the next tax bracket.

Or you can go ahead and blame the Government.

The more you make, the more they take!
Yet, since you have kids and there's the $800 ($400X2)Make Work Pay relief, you should be getting more this year. Maybe you should check with H&R Block to see if you are making mistakes or entitled to some overlooked deductions. Let the agency work your taxes, they'll let you know how much you'll be getting, then when they are about to file your return, tell them you are not ready to file now! Like that, you can get a "professional" second opinion for free.
Good luck!

SUCKISSTAPLES said: if you think hr block are pros ive got a bridge to sell you

Does your bridge have an MLS number I can verify?

TheDragonn said: Cashman said: montag said: I know, I know...you don't want to give the government a interest free loan for a year....

Regardless, that's what we do and every year we get back anywhere from 6 to 8K. Starting Jan. 2009 my wife went back to work. When we submitted her W4 we used an IRS calculator to figure our the withholding. We have 2 kids and in 2009, our taxable income doubled. Our refund this year was only $500. What the heck is going on here? Why is this years refund so much smaller?

You answered your own question. Probably got bumped up into the next tax bracket.


Or you can go ahead and blame the Government.

Is that supposed to be ironic? You do realize that the next tax bracket is entirely MARGINAL, meaning a likely 3% increase on taxes MARGINALLY from what he owed before?

OP, what do you mean that your "taxable income doubled"? Did you earn twice as much income in 2009 as in 2008? I'm confused. Did you forget to take a personal exemption or a deduction for one of your children or something? Human error is likely at fault here.

How do we know his next tax bracket was the 3% jump? It's possible he went from the 15 to 25% bracket with the 2nd income from his wife - he never stated what bracket he was in.

Obviously, he was overpaying on withholding before and this basically balanced out with his wife's income.

OP - is your wife currently working and will she this year?

Have you tried the obvious and compared the two returns. Seems like you have the data right there in front of you. You might learn something and not have to rely on others all the time.

OP,

Post your unredacted return from both this year and last year and I will see what I can do.

Please no spam/scammers!

Ray

Cashman said: TheDragonn said: Cashman said: You answered your own question. Probably got bumped up into the next tax bracket.

Or you can go ahead and blame the Government.

Is that supposed to be ironic? You do realize that the next tax bracket is entirely MARGINAL, meaning a likely 3% increase on taxes MARGINALLY from what he owed before?

OP, what do you mean that your "taxable income doubled"? Did you earn twice as much income in 2009 as in 2008? I'm confused. Did you forget to take a personal exemption or a deduction for one of your children or something? Human error is likely at fault here.

How do we know his next tax bracket was the 3% jump? It's possible he went from the 15 to 25% bracket with the 2nd income from his wife - he never stated what bracket he was in.
So apparently you weren't kidding.

I don't think you're grasping how tax brackets work. If you're in the "25% bracket", not all of your income is taxed at 25%. Only the portion that exceeds the floor for a marginal 25% tax rate.

As an easy example, say there was 10% tax bracket under $50k, but 25% over $50k. If you earned $51k, your taxes would be ($50k * 10%) + ($1k * 25%), not ($51k * 25%).

ibmman69 said: Seriously?

i guess. you mean you can't answer based on all the information given? we need to brush up on our math and solve the following w+x+y-z=?

Instead of focusing on the "Refund", why not focus on the total tax liability?

The refund is merely a reflection of an overpayment to the IRS. The total tax liability is where the real number lies.

From there you can compare to last year to see what changed (be it total tax, tax credits, etc...)

montag said: gatzdon said: Instead of focusing on the "Refund", why not focus on the total tax liability?

The refund is merely a reflection of an overpayment to the IRS. The total tax liability is where the real number lies.

From there you can compare to last year to see what changed (be it total tax, tax credits, etc...)Ouch! You guys are brutal. I guessed I mistook your "know-it-all" forum for a "discussion" forum. My bad.

Anyhow, I'll have to check out my 2008 tax paperwork tonight when I get home. To answer one question though, in 2008 my income (wife not working) was approximately $90K. In 2009, with my wife working full-time, our income was approximately $160K.

I don't really see how you can call that comment brutal. Gatzdon is exactly right. Most others here are just bashing on other members for not understanding how the tax system works. For those people, I'd submit that the general US population doesn't understand marginal tax brackets, so lay off.

Anyway, the above suggestion is exactly what you should do. Obviously, if your income has doubled, you're likely to owe more taxes. If you used the IRS calculator correctly, then it's obviously done it's job fairly effectively. If you made twice as much this year, and you withheld the same amount of taxes roughly, then your refund might just be completely accurate.

PMonkeyDishwasher said: Cashman said: TheDragonn said: Cashman said: You answered your own question. Probably got bumped up into the next tax bracket.

Or you can go ahead and blame the Government.

Is that supposed to be ironic? You do realize that the next tax bracket is entirely MARGINAL, meaning a likely 3% increase on taxes MARGINALLY from what he owed before?

OP, what do you mean that your "taxable income doubled"? Did you earn twice as much income in 2009 as in 2008? I'm confused. Did you forget to take a personal exemption or a deduction for one of your children or something? Human error is likely at fault here.

How do we know his next tax bracket was the 3% jump? It's possible he went from the 15 to 25% bracket with the 2nd income from his wife - he never stated what bracket he was in.
So apparently you weren't kidding.

I don't think you're grasping how tax brackets work. If you're in the "25% bracket", not all of your income is taxed at 25%. Only the portion that exceeds the floor for a marginal 25% tax rate.

As an easy example, say there was 10% tax bracket under $50k, but 25% over $50k. If you earned $51k, your taxes would be ($50k * 10%) + ($1k * 25%), not ($51k * 25%).But the withholding calculator is based only on the amount of the wife's paycheck, and does not take his pay into consideration. Their tax liability is based on the wife's check ON TOP OF his check. So their marginal tax rate is very likely higher than the bracket her withholding was based on.

Another possibility is if they did not claim the Make Work Pay credit - most people have already received the benefits through lower withholding, but it still needs to be claimed on the tax return to reduce the actual tax liability.

montag said: Ouch! You guys are brutal. I guessed I mistook your "know-it-all" forum for a "discussion" forum. My bad.

Anyhow, I'll have to check out my 2008 tax paperwork tonight when I get home. To answer one question though, in 2008 my income (wife not working) was approximately $90K. In 2009, with my wife working full-time, our income was approximately $160K.

First of all, your income jumping from $90k to $160k erased $2000 of child tax credits right out of your refund (you have 2 kids). There may be phase-outs for other deductions and credits (incl. the making work pay) as well in this income range. So not only are you being taxed a higher rate / bracket, your net tax is even painfully higher than those published tax rates due to losing other tax advantages you had at a lower income. In order to make up for all this, your wife's paychecks would probably need at least 30% federal tax taken out just to 'break even' and maintain your $6k-$8k refund. I'm betting when you ran the calculator it didn't take your income into account, and withheld far less (check her W2 to see).

I had to give this alot of thought when my wife went back to work - when you stack the second income the net benefit may not be what you expect.

Glitch99 said: But the withholding calculator is based only on the amount of the wife's paycheck, and does not take his pay into consideration. Their tax liability is based on the wife's check ON TOP OF his check. So their marginal tax rate is very likely higher than the bracket her withholding was based on.
Why are you assuming they used the calculator incorrectly? One of the first questions is "Select the total number of jobs in which you and your spouse are currently employed. For example, if you have 1 job and your spouse has 2, select 3." The calculator then asks for earnings about each job. OP never said that he and his wife deliberately answered the calculator questions wrong, so it's probably best to assume that they gave accurate responses.

The wife's withholding exemptions is already at 0.

Thanks for all the input. I obviously have to pay more attention to our money and tax matters. My "brutal" comment was in jest. I knew I was setting myself up a bit by asking such a basic question but I do thank you all for your comments and input!

montag said: The wife's withholding exemptions is already at 0.

Thanks for all the input. I obviously have to pay more attention to our money and tax matters. My "brutal" comment was in jest. I knew I was setting myself up a bit by asking such a basic question but I do thank you all for your comments and input!

Yes 0 may not be enough, the W4 doesn't know this income is being stacked on yours. You would need additional withholding.

But that is all moot, you should leave it alone now. Withhold only enough to pay your tax liability and don't let the gov't borrow your money during the year.

The simple answer is that this is not a question that can be answered effectively in this forum. You need to consult a local pro who can go over your last 2 returns line by line and tell you what happened. No one here will be able to give you a catch-all answer because there isn't one.

I can tell you, however, that your wife's income was under-withheld. The additional taxes that were required when you added her income to your return was not covered by her withholdings and your refund covered the balance. At least, this is the case when you are looking at refund as the end result. In the end, you should not be giving the gov't that much interest free money and I think you did just fine at that.

Looking at it another way: In 2008, you had the sole source of income. That income got the benefit of the 10% and the 15% rates before getting to the 25% rate (if you even got there). It also got the benefit of all your deductions and credits. Now, you add $70k of income, but no additional deductions. That money gets "charged" your straight marginal rate, likely 25% on almost all of it. There is no way in hell that she paid in 25% of 70k as withholdings, so the additional income was under-withheld. Not to mention the loss of credits as already mentioned above.

Yes, I do taxes. Find a local pro and get an explanation based on your real facts. They might even find something you missed.

If you want a tax refund that everybody will envy, follow these simple steps:

1) Print out 2 copies this from the IRS, one for you and one for your wife.
2) Write out a "0" on line 5 of that form. Fill out the rest of the personal information on the form.
3) For an even bigger refund, enter an amount on line 6 of the form. The bigger the amount, the bigger your refund is! The sky is the limit.
4) If that isn't enough, you can pay even more money to the IRS every quarter through this link. Again, the more money you pay, the more money you get back in your refund.

A tax refund of $30k, $40k, even $50k next year is within your reach. It's all up to you!

Huh?

If brackets worked otherwise, just about every employee on earth would be earning one dollar less than the threshold and screaming "Dear God, please don't give me a raise!"

I don't think anyone was unusually mean or condescending in this thread--a lot of the OP's question could have been solved with a google search. I think most people view the FWF forums as a way to expound on very specific or esoteric situations, not to dole out basic tax advice. That's something for Yahoo Answers, et al.

No, you misunderstand. Because of the dual income no kids and the marriage penalty at higher tax brackets (above the 25% bracket, and also some phaseouts), they should be checking "married, but withhold at the higher single rate" instead of withholding at the lower married rate. This can be seen by looking up the tables in Publication 15.