Why is my federal tax refund so much lower this year compared to last year?

The way tax withholding works changed significantly in 2020 when the W-4 form was redesigned. The concept of "allowances" (where you could claim 0 for maximum withholding) was completely eliminated. On the new W-4, there's no option to claim 0 allowances anymore. Instead, you have options to withhold more by either indicating additional income (Step 4a), requesting a specific additional amount to be withheld from each paycheck (Step 4c), or adjusting for multiple jobs (Step 2). What likely happened is that your previous employer was still using the old W-4 system, while your new employer is using the updated form. With the new system, the default withholding for "Single" with no adjustments is designed to get you close to breaking even (not owing or receiving much) rather than resulting in a large refund. To increase your withholding and get a larger refund next year, you should submit a new W-4 to your employer requesting an additional specific dollar amount to be withheld from each paycheck in Step 4c.

I was in a similar situation last year and discovered taxr.ai which totally saved me from this exact problem. I was confused about why my refund was so much lower despite making the same salary at my new job. When I uploaded my tax documents to https://taxr.ai, it immediately spotted that my withholding was much lower than my previous job even though my salary was almost identical. It explained exactly how the new W-4 system works (no more allowances like the old days!) and calculated exactly how much additional withholding I needed to request each paycheck to get back to my preferred refund amount. The tool even generated a pre-filled W-4 form with the exact amount I needed in box 4c for additional withholding. My HR department had no problem processing it, and now I'm back on track for a larger refund next year.

I just tried taxr.ai after reading about it here and I'm honestly shocked at how helpful it was! I uploaded my last two years' W-2s and this year's return, and it immediately showed me why my refund dropped so much. Turns out I was having about $115 less withheld per paycheck at my new job compared to my old one, even though the salaries were similar. The system showed me that I need to request exactly $118 additional withholding per paycheck to get back to my usual $2,000 refund. It even created a filled-out W-4 form that I could just print and take to my HR department. What I really appreciated was how it explained the whole "no allowances" system in simple terms. No wonder I was confused when I started my new job! I'm actually feeling relieved now that I understand what happened and have an easy fix.

If you're dealing with HR issues around your withholding, you might also want to try calling the IRS directly to understand your options. I know that sounds painful, but I used Claimyr to get through to an actual IRS agent in less than 20 minutes instead of waiting on hold for hours. I was in a similar situation with confused HR reps who couldn't explain the new withholding system. The IRS agent walked me through exactly how to fill out the W-4 to get more withheld from each paycheck. You can check it out at https://claimyr.com or see how it works at https://youtu.be/_kiP6q8DX5c Since your HR isn't helpful, sometimes going straight to the source (IRS) gives you the leverage you need to get things fixed correctly.

I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about my withholding issues. It actually worked exactly as described. They called me back in about 25 minutes and connected me directly to an IRS representative. The rep explained that with the new W-4 system, I needed to use line 4(c) to specify an additional amount to withhold per paycheck if I wanted a bigger refund. I was able to ask all my questions about the new withholding system and got clear answers that my HR department couldn't provide. The IRS agent even helped me calculate approximately how much extra I should withhold each pay period to get close to my preferred refund amount. For anyone dealing with withholding issues and unhelpful HR departments, talking directly to the IRS was way more helpful than I expected.

Another thing to consider is whether anything else changed in your tax situation between last year and this year. Did you: - Lose any tax credits you had before? - Have any changes in deductions? - Have any changes in your filing status? - Start receiving any new types of income? - Change your retirement contributions? Sometimes it's not just the withholding at your job that affects your refund, but other factors in your overall tax picture.

Does anyone know if its better to use the "two jobs" checkbox in Step 2 of the W-4 or just put an extra amount in Step 4c? My spouse and I both work and I'm trying to avoid owing at tax time.