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After I graduated high school I grabbed a minimum wage job ($10) and only worked for 3-4 months before the year ended. I ended up getting $440 back through federal and state tax refund. Then for the entire next year I worked minimum wage at a different job (still $10) with better future prospects and my boss gave me a $2 raise (now $12) in November if I remember correctly.

I'd been looking forward to my tax return because if working 3-4 months netted me almost $450 on my tax return then I should probably expect 3-4x more than that on this years tax return since I worked the whole year. Well long story short, I'm filing my taxes through TurboTax and it looks like federal and state combined is only giving me $200. I'm no tax expert and I'm not sure where to ask this but I'm wondering if my raise at the end of the year is causing TurboTax to miscalculate how much money I owe in taxes and therefore miscalculate how much I should be getting back?

No matter how I look at it I don't understand how I worked 3-4x as much as the previous year and paid 3-4x times more in taxes and am only receiving half as much on my tax return.

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    Note that the money you get back from the IRS is your tax REFUND. Your tax RETURN is the paper or electronic forms you fill in and send to the IRS. – jamesqf Feb 25 at 5:41
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    I very much appreciate this question because it represents some common misunderstandings about the complicated US tax system! It's amazing what kind of weird system 400+ folks in a room together, re-elected every 2 years can come up with over the period of a century. – Ogre Psalm33 Feb 25 at 13:58
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    Consider yourself lucky that you don't owe additional tax. A refund is not a given, not some sort of government-sponsored annual bonus. – chepner Feb 25 at 14:31
  • @OgrePsalm33 The problem isn't them so much as it is TurboTax and similar companies that profit from the confusion. There have been some excellent laws proposed recently that would massively simplify tax preparation, but lobbying by tax preparation software companies (who would lose business if the process became easy enough that their software was no longer necessary) got it shut down every time. – Mason Wheeler Feb 25 at 23:25
  • @Mason Wheeler: It's already easy enough that tax preparation software (beyond the IRS Free Fillable Forms) isn't necessary. It's just that all the paid tax preparers have convinced people that it isn't. – jamesqf Feb 26 at 5:04
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You're receiving less back because the withholding calculations were more accurate.

If you hadn't received a raise, you would probably have gotten $0 back at filing time.

Because the US income tax isn't a flat percentage, but is progressive, the taxes owed during any paycheck require knowing your income for the rest of the year in order to figure out what bracket you're in, which together with your credits and deductions, determine your effective tax rate. The rules for withholding are quite complicated, but an approximation that's good enough for our purposes is: "Assume you earn at the same rate for all 52 weeks, calculate the total income tax owed during the year, divide it back out by 52 weeks".

When you only worked 3-ish months, that rule overguessed your total tax bill and therefore took out too much from each check. And you got the extra back at the end of the year, after Uncle Sam got to use it all year, without paying you any interest (yes, refunds are bad for the taxpayer!) In addition, you qualified for the Earned Income Tax Credit, so the total taxes you paid were likely negative.

When you worked all year, withholding for the first 10 months was based on a full year of $10/hr (which slightly underestimated your actual tax due after figuring in the raise) and for the last 2 months was based on a full year of $12/hr (which overestimated your actual tax, because you didn't earn at that rate all year). Additionally, not only did the EITC not increase by a factor of four the way your pay did, you lost it completely (assuming you are single with no children).

And assuming you correctly typed in the numbers from your W-2, TurboTax knows exactly how much you owe in taxes, because it knows your exact income, and the exact amount you already paid. None of the withholding calculations during the year "knew" either how much you owed or how much you already paid, even the last paycheck of the year where all the information was available (because doing the accurate calculation wouldn't by allowed by the IRS)

By earning all year and at a higher rate, you had a higher effective tax rate. No, it's not fair. It's progressive.

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    "No, it's not fair. It's progressive" sounds like you're getting awfully close to some lines there. – not_a_comcast_employee Feb 25 at 4:26
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    It's perfectly fine as long as "progressive" means "progressive tax system" of course. I just wanted to point out, that it almost could mean "of course it's unfair, it's supported by the political left" which is not a statement that should be made here. – not_a_comcast_employee Feb 25 at 4:55
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    @not_a_comcast_employee: I do mean "progressive tax system". I also know that's the only kind of tax system the political left is willing to support, but that as you say is off-topic, so why bring it up? – Ben Voigt Feb 25 at 4:57
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    Overly simplified but if you make 100K and I make 50K, we both pay the same amount of tax on the first 50K of earnings. Not sure what's unfair about that. – JimmyJames Feb 25 at 18:32
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    I read "progressive" as referring to a progressive tax system, but I still think it detracts from the otherwise excellent answer. We can argue all day about whether regressive, progressive, flat, VAT, or any other plan is "fair." The OP didn't mention fairness (I checked the question edit history) so in my ever so humble opinion, this answer would be better if it didn't, either. – stannius Feb 25 at 22:15
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The calculation may very well be correct, because income taxes (federal and some states) are progressive, not flat. Your refund depends on your tax withholdings in relation to what you actually turn out to owe. For 2017, your total income was low enough that your tax owed was probably zero (the first ~$10k of income is excluded for singles), so you received all your withholdings back. For 2018, because you worked the whole year, your withholdings came close to matching your total tax owed (as they're designed to), so your refund is small.

If your W-2 is correct, the information you entered in TurboTax already properly accounts for your annual totals including the effect of the raise late in the year.

If you're lucky enough to earn more money over time, you'll have the privilege of paying higher and higher tax rates.

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The withholding tables are based on working at that rate all year. There is a substantial base of income that is not taxed, so if you only work part of the year your withholding will be too high and you will get a large percentage of your witholding (maybe all of it) as a refund. Now that you worked all year the withholding is more accurate so your refund is a lower part of the withholding.

I have heard the tables were adjusted to lower the withholding so people would see the tax "cut" in their paychecks, which would lower people's refunds. I do not know if that is true.

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    It's not that the tables were done differently, it's that the tables over-withhold for those who itemize, and under the new rules, a lot fewer people itemize. – Ben Voigt Feb 25 at 18:03
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    @BenVoigt Not according to this announcement from the IRS: "WASHINGTON — The Internal Revenue Service today released Notice 1036, which updates the income-tax withholding tables for 2018 reflecting changes made by the tax reform legislation enacted last month." [Emphasis mine] – JimmyJames Feb 25 at 19:13
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    @JimmyJames: The brackets changed, therefore the tables had to be updated. But they follow the same formulas, just with different tax rates and different standard deductions. – Ben Voigt Feb 26 at 0:31
  • @BenVoigt This seems like a distinction without a difference. No one is claiming that they came up with a brand new system. Just that the withholding was lower overall. – JimmyJames Feb 26 at 15:48
  • @JimmyJames: The answer says that there's a specific purpose for the update other. Serving a new purpose would require changing the methodology, or at least the timing, of the update. If the same old methodology provides the benefit based on the new brackets, then the benefit comes from the bracket changes and not from the table update. – Ben Voigt Feb 26 at 16:09
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Refunds are caused by withholding calculations being larger than actual tax owed, and one the biggest reasons for that happening is having income that changes throughout the year. It is the high change in income that causes the refund, not the income itself. A change in income can happen through hourly rate or number of hours worked changing. Your most recent job had an hourly rate change of $2, which caused a slight over-withholding. But the previous year, you went from having no income at all to having $10/hr, which was a much larger jump, so the refund was larger.

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    Good perspective. The tax owed is a convex function of income in a progressive scheme, so the "tax on the average" (what's owed) is less than the "average of the taxes" (what's withheld) when there is variation during the year -- the more so the larger the variation. – nanoman Feb 25 at 23:14

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