0

Suppose a person had the same salary as 2020 and lived in NY and got a refund. Also suppose he lived in PA in 2021 and didn't get a refund? Why would this be the case? I thought PA tax was lower than NY tax?

1
  • 5
    Rather than looking at the amount of the refund, look at how much you actually paid in taxes to NY and PA. In TurboTax, you can see this on the State Tax -> NY/PA -> Let's Check it Over (at least that's how I see it with VA installed). It should show your income, state-specific deductions, tax owed, and tax already withheld. Those are the numbers you need to compare year to year.
    – mmathis
    Apr 13, 2022 at 13:16

3 Answers 3

20

The refund is based on the difference between what was withheld and what you should have paid. Most states use a state specific W-4 to tell the employer how much to withhold.

It is possible that the numbers you entered on the Pennsylvania W-4 resulted in more accurate withholding in Pennsylvania, compared to the New York W-4 and New York income.

The difference in the rates is only important when comparing the amount you should have paid. The accuracy and thus the refund depends on the individual income profile, and the numbers on the W-4.

10
  • 6
    @taxguys322 your W-4 is the form you filled out when you began employment to ask your employer what to pay in on your behalf. It asked you how many dependents you have and similar. Your W-2 is the form you get from your employer in January that is a record of what was actually paid in taxes and what the employer paid you. Turbo Tax uses the information on your W-2 to calculate the difference between what you actually paid in (as recorded on W-2) and what you should have paid in (per calculation). In fact, if you ended up owing taxes, you may choose to amend your W-4. Apr 12, 2022 at 17:42
  • 5
    @taxguys322 If you modify a state or federal W-4 the changes will start on the next paycheck after the company processes it, and continue until you submit a new W-4 or change employers. It does nothing for the paychecks already received. Apr 12, 2022 at 17:51
  • 1
    Since you asked about TurboTax in particular and it sounds like you may be revising your W-4, there is a part of TurboTax that helps guide you in filling out your state's W-4. Sometimes the guidance on the state form itself is difficult to understand (it has been in the 2 states I lived in, though it's getting better). Apr 12, 2022 at 21:31
  • 1
    @taxguys322 yes, you can change your W-4 at any time, though it will only change your withholding on future paychecks. If your employer has an automated HR system, you should be able to do it in there. Otherwise, talk to your employer's payroll department.
    – Seth R
    Apr 13, 2022 at 14:05
  • 1
    @rtaft: To be clear, the reason it doesn't have one is that PA has a flat income tax rate, and very few deductions/credits, excluding most federal deductions too, even if you itemize. In exchange for the poor paying more than other states (and the rich less) with similar total taxation, the tax calculation is pretty easy: Take your income, subtract MSA, HSA, 529, and ABLE contributions, you owe 3.07% of what remains, regardless of filing status. Since most HSA contributions are done through payroll deductions, your employer can deduct fairly accurately with no need for a W-4-like form. Apr 13, 2022 at 14:31
12

I think your understanding might be incorrect - a 'refund' is not something 'normal people get' just because - a refund is the IRS giving money back that you overpaid during the year - which is obviously a poor idea to do, you are basically giving the government a free loan.

  • if your paycheck federal tax deductions are too low, you will owe extra money at the end of the year, plus a potential penalty.
  • if your paycheck federal tax deductions are too high, you will get the extra money back when (and if) you file your taxes. That's a 'refund'.
  • you control your paycheck federal tax deductions with the W-4 form - you fill it and give it to your employer, and they deduct accordingly; could be too much or too little, they neither know nor care. It's your duty to get it right!
  • it should be your interest to hit it just right, so you neither owe taxes nor get a refund. You need to fill the W-4 accordingly; and you can change it during the year anytime you think it needs changing.

In a nutshell: getting a big refund means you made sub-optimal decisions earlier in the year. It's not something to target for.

7
  • so assuming my W-4 form, salary and state is the same this year and last year, why would my taxes be higher this year? In both cases wouldn't the federal tax deductions be the same? Also my state taxes are higher. So would that mean my state tax deductions be too low? In any case, shouldn't they be the same for this year and last year given same W-4 and same salary?
    – taxguys322
    Apr 12, 2022 at 23:13
  • No, many rules change every year, and the standard deduction changes, etc. Also, there were different CoviD payments from the government in each year which result in higher or lower taxes and refunds. This stuff never stays the same.
    – Aganju
    Apr 12, 2022 at 23:16
  • So federal tax deductions change each year iand "too high" and "too low" are defined differently each year? But why would the threshold change so much from this year and last year?
    – taxguys322
    Apr 12, 2022 at 23:28
  • 1
    "which is obviously a poor idea to do". In my experience most people are impressively awful at saving money so this "forced" savings account is a blessing for a number of people especially after the holiday season.
    – MonkeyZeus
    Apr 13, 2022 at 12:51
  • One other thing to keep in mind is that some states require you to be paying an appropriate amount on a quarterly basis, and you can get hit with penalties if you underpay either by listing too many deductions or because your company didn't withdraw the proper tax. The government doesn't mind getting a free loan from you, but they object to you delaying paying them. Apr 13, 2022 at 13:20
2

Pennsylvania's tax rate is a flat 3.07% of taxable income and does not allow exemptions like children, marriage, etc. It does not have a W-4 equivalent like NY where you can claim exemptions. You would not overpay or underpay in most cases, and not owe state taxes nor get a state refund at tax season. There are some exceptions to this, but the majority of regular employees fall under this case.

You got a refund in NY because as other answers indicate, on how you filled out your IT-2104 form (W-4 equivalent). Many younger people I know file 0 exemptions, withholding the maximum amount.

5
  • Why does a tiered tax rate make a difference regarding whether you get a refund? The withholding tables take this into account.
    – Barmar
    Apr 13, 2022 at 14:27
  • @Barmar I'll reword it
    – rtaft
    Apr 13, 2022 at 14:28
  • @Barmer, with a flat tax rate, it doesn't matter whether your paychecks are all the same or they vary. With tax brackets, if your income varies—you work overtime some months, get a raise during the year, or earn all your money in 6 months and take the rest of the year off—all of these things result in too much withholding for the year.
    – prl
    Apr 14, 2022 at 2:10
  • @prl He's right, the brackets aren't the issue, it's the exemptions that causes the inability to accurately withhold taxes. You don't always know what exemptions you can use until tax time, like having a child.
    – rtaft
    Apr 14, 2022 at 12:46
  • @prl actually you do have a point now that I have read it again, the brackets can be an issue if your income changes.
    – rtaft
    Apr 14, 2022 at 13:27

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .