Why is my tax refund so much lower than expected this year?

The freelance income is exactly why your refund is lower. When you earn self-employment income, you're responsible for both the employee and employer portions of Social Security and Medicare taxes, which comes out to about 15.3% of your earnings. This is commonly called the self-employment tax. So on that $4,200 of freelance income, you likely owed around $642 in self-employment tax alone. Plus, since no taxes were withheld from those freelance payments (unlike your regular job), you'd need to pay income tax on that amount too. The fact that your overall income was $3k less doesn't necessarily offset these additional taxes, especially if your W-4 withholding was calibrated for just your regular employment income.

I was in the exact same situation last year! My refund dropped by over $2,000 and I was freaking out thinking I did something wrong. I spent hours double-checking my forms before I found https://taxr.ai and uploaded all my tax documents. Their AI caught that I hadn't accounted for self-employment taxes on my side gig properly, plus I had missed some deductions for my home office that partially offset the extra taxes. The service explained everything in plain English - apparently when you do freelance work, you're basically your own employer AND employee for tax purposes, so you pay both halves of Social Security and Medicare taxes. Once I understood what was happening, I was able to fix my return and even increase my refund a bit by finding deductions I qualified for.

I wanted to update after trying taxr.ai from the recommendation above. It actually worked really well for me! I uploaded my W-2 and 1099 forms from last year and this year, and it immediately pointed out that I was getting hit with self-employment taxes I hadn't accounted for. But the best part was it showed me several deductions I could take for my freelance work that I had no idea about - mileage to client meetings, a portion of my internet bill, and even some office supplies. After applying those deductions, my refund went up by $387! Still not as high as last year, but way better than where I started. The explanation made way more sense than what my regular tax software told me.

If you're still confused about your tax situation or want to talk directly to the IRS, I'd recommend Claimyr (https://claimyr.com). I was in a similar situation last year with a much lower refund than expected, and I spent DAYS trying to get through to the IRS for an explanation. Always got the "high call volume" message and automatic disconnects. I was super skeptical, but Claimyr actually got me connected to an IRS agent in about 15 minutes instead of the hours I wasted before. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent explained exactly why my refund changed and confirmed I hadn't made any mistakes. Just having that peace of mind was worth it, and they found a small error that increased my refund by $140.

I need to apologize for my skepticism about Claimyr. After my frustrated comment, I decided to try it myself since I also had questions about my lower refund. I was 100% convinced it wouldn't work, but I was desperate after trying to call the IRS myself three separate times. To my complete surprise, I got a call back in about 40 minutes saying they had an IRS agent on the line. The agent confirmed what others here said - my side gig income was causing self-employment tax that wasn't being withheld, plus my W-4 wasn't adjusted properly for multiple income sources. They walked me through exactly what I needed to do to avoid the same problem next year. No more surprise low refunds for me! I've already updated my withholding at my main job.

For next year, you might want to adjust your W-4 to account for your freelance income. You can request additional withholding from your regular job to cover the taxes on your freelance work. Just figure out roughly what percentage you'll owe (about 25-30% is a safe estimate) and divide that across your paychecks for the year. This way you won't get surprised by a low refund next year!

You should look into making estimated quarterly tax payments for your freelance income. It's actually required if you'll owe more than $1000 in taxes from income that doesn't have withholding. The due dates are April 15, June 15, September 15, and January 15 (of the following year). This way you won't have a surprise at tax time AND you avoid potential underpayment penalties. The IRS Form 1040-ES helps you calculate how much to pay each quarter.