Why do some people owe more taxes while others get refunds at tax time?

The main reason people end up in different tax situations (owing vs. getting refunds) comes down to withholding throughout the year, not necessarily your actual tax liability. When you fill out your W-4, you're essentially telling your employer how much to withhold from each paycheck for taxes. If too little is withheld during the year, you'll owe at tax time. If too much is withheld, you'll get a refund. Your coworker is likely having more tax withheld from each paycheck than you are, which means they're essentially giving the government an interest-free loan all year and getting it back at tax time. The W-4 form changed significantly in 2020, so claiming "0 allowances" isn't actually a thing anymore. You might want to check if you're using outdated terminology, which could mean your withholding isn't set up correctly.

I was in a similar situation last year and was totally frustrated about owing taxes despite thinking I'd set everything up right. Then I found this tool called taxr.ai (https://taxr.ai) that helped me understand what was happening with my withholdings. It analyzed my pay stubs and tax situation and showed me exactly where the problem was - turned out I had accidentally checked a box on my W-4 that was reducing my withholding without me realizing it! The tool basically does a "tax checkup" midyear so you don't get surprised at tax time. It showed me that I needed to have an additional $75 withheld from each paycheck to break even on my taxes. Super helpful for seeing these problems before filing season.

So I took the advice from this thread a few months ago about using taxr.ai (https://taxr.ai) and I'm just coming back to say it was a game changer for me! I adjusted my withholding based on what it recommended and I'm now tracking to get a small refund next year instead of owing $1500 like I did this year. It was especially helpful with calculating how much I needed to set aside for my side gig income - turns out I was WAY underpaying on my quarterly estimates. Just wanted to share since it solved exactly the problem the original poster was talking about!

One thing nobody's mentioned yet - if you're constantly getting blocked trying to call the IRS to ask about your withholding situation, try using Claimyr (https://claimyr.com). It's this service that gets you through to an actual IRS agent without the hours of waiting and disconnects. I was trying to figure out a similar withholding issue and kept getting the "call back later" message whenever I called the IRS. I was super skeptical at first, but you can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically it navigates the phone tree and holds your place in line, then calls you when an agent is about to pick up. I ended up talking to someone who walked me through exactly how to adjust my withholding so I wouldn't owe next year. Saved me hours of frustration and solved my problem.

I need to eat my words from my previous comment. After getting absolutely nowhere with the IRS for weeks (and being on hold for 2+ hours only to get disconnected THREE TIMES), I reluctantly tried Claimyr yesterday. I was connected to an actual IRS rep within 40 minutes, and they helped me understand exactly why I was owing taxes despite having what I thought was the correct withholding. Turns out I had checked a box on my W-4 that wasn't applicable to my situation, which was causing my employer to withhold too little. The agent walked me through exactly how to fix my W-4 for next year. So yeah, I was wrong and it actually worked. Just wanted to update since I was so skeptical before.

Another thing to consider is your deductions vs. your coworker's. Even with similar salaries, if she has more deductible expenses than you do (maybe she has student loans, makes charitable contributions, has medical expenses, etc.), her taxable income would be lower than yours. Also, tax credits make a HUGE difference. If she qualifies for any credits that you don't (education credits, retirement savings contributions credit, etc.), that could easily explain the difference in refunds.

has anyone else noticed that the whole tax system is basically designed to be super confusing? like why can't they just tell us what we owe instead of making us figure it out and then punishing us if we get it wrong? it's ridiculous tbh

I went through the exact same situation last year! What really helped me was understanding that a tax refund isn't actually "free money" - it's just getting back your own money that you overpaid throughout the year. Your coworker is essentially giving the government an interest-free loan with every paycheck. Here's what I'd recommend: First, use the IRS Tax Withholding Estimator online to figure out your ideal withholding amount. Second, consider increasing your 401(k) contributions - even bumping from 3% to 6% could significantly reduce your taxable income. Third, make sure you're claiming all eligible deductions like student loan interest if you have it. The goal shouldn't necessarily be getting a big refund - ideally you want to break even or owe just a small amount, which means you kept more of your money in your pocket throughout the year instead of lending it to the IRS for free. Once I adjusted my W-4 and increased my retirement contributions, I went from owing $600 to getting back about $150, which is pretty much the sweet spot.