Why is there such a big tax refund difference between me and my coworker?
So I make about $65k a year and my coworker makes roughly the same (we're in the same position with nearly identical salaries and are pretty open about what we earn). We're both single with no dependents. We were chatting yesterday about how we both filed our taxes this past weekend. The weird thing is, she ended up owing about $15 to the IRS while I got a federal refund of $1,350. I'm super confused about why there's such a huge difference! We do live in different states (our office is literally about a mile from the state border), but I'm specifically talking about our federal refunds, not state taxes. Is there something I should be looking at so I don't have so much withheld throughout the year? Or what else could explain why our refund situations are so different when our income is basically identical??
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Cameron Black
The difference in your tax refunds likely comes down to how you each filled out your W-4 forms, which determines how much federal tax is withheld from each paycheck. Your refund means you had more tax withheld throughout the year than you actually owed, while your coworker's amount due means her withholdings were almost exactly right. Some common things that affect withholding and refunds between similar earners: claiming different withholding allowances on your W-4, having additional income sources (side gigs, investments), taking different deductions (student loan interest, retirement contributions), or having different tax credits you qualify for. Even small differences in health insurance premiums or HSA/FSA contributions can impact your taxable income.
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Victoria Jones
•That makes sense about the W-4! I think I've had the same withholding setup since I started working here 3 years ago. Should I adjust my W-4 to get less of a refund? I always thought getting a refund was good, but now I'm wondering if I'm just giving the government an interest-free loan all year.
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Cameron Black
•Adjusting your W-4 to reduce your refund is a personal financial decision. Having less tax withheld means more money in each paycheck that you could invest or use throughout the year instead of waiting for a refund. The IRS has a Tax Withholding Estimator on their website that can help you calculate the right withholding amount. Many people do prefer smaller refunds and larger paychecks, as you noted it's essentially giving an interest-free loan to the government. However, some people like using refunds as a forced savings method. It really depends on your financial habits and preferences!
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Jessica Nguyen
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Ruby Garcia
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Ruby Garcia
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Maya Lewis
The biggest difference is probably your retirement contributions. If you're putting money into a traditional 401k and she isn't, that alone could explain a $1000+ difference in tax. At your income level, contributing say 10% to a 401k would lower your taxable income by $6500, which could easily create that refund difference.
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Victoria Jones
•I do contribute about 8% to my 401k while I'm pretty sure she doesn't contribute much if anything. That makes so much sense! So basically my taxable income is lower because of the 401k contributions, but the withholding might be calculated before that's taken out?
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Maya Lewis
•Your withholding is actually calculated after 401k contributions are taken out, but there could still be differences in how your W-4 is set up compared to hers. The 401k contributions directly reduce your taxable income, which means you owe less tax overall compared to someone with identical gross income who isn't contributing. If you're contributing 8% on $65k, that's about $5,200 you're not being taxed on. At the 22% tax bracket, that's roughly $1,144 in tax savings just from the retirement contributions. This matches pretty closely with your refund amount, which suggests this might indeed be the primary difference between your situations.
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Isaac Wright
I had a similar situation with a coworker and it turned out we had completely different health insurance plans! Are you on the company health plan? The premiums might be taken pre-tax, which affects your taxable income and therefore your refund.
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Lucy Taylor
•This was exactly my situation too! My coworker was on her husband's insurance while I was paying $240/month pre-tax for our company plan. That difference in taxable income caused her to owe and me to get a refund.
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Emma Thompson
Another factor that could explain the difference is if you have student loan interest deductions. If you're paying student loans and she isn't, you can deduct up to $2,500 in student loan interest, which would reduce your taxable income and potentially explain part of that $1,350 refund difference. Also worth checking if either of you contributed to a traditional IRA during the tax year - that's another above-the-line deduction that reduces taxable income. Even a $1,000 IRA contribution could create a meaningful difference in your final tax liability compared to someone who didn't contribute.
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Jamal Thompson
•That's a great point about student loans! I do pay about $180/month in student loan interest, so that deduction probably helps. I hadn't thought about IRA contributions either - I should look into that for next year. It's interesting how all these little differences add up to create such a big gap in our refunds even though our base salaries are so similar.
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