Why Did My Tax Return Go Down When I Added Another W2?

Many taxpayers with more than one job are surprised when filing their taxes. After entering a first Form W-2, the software may show a refund, but adding a second W-2 can cause that refund to shrink or become a tax bill. This shift is not an error but a result of how income tax withholding is designed. Each employer calculates withholding in isolation, while your tax return must consolidate all your earnings for the year.

How Tax Withholding is Calculated

When you begin a new job, you provide your employer with a Form W-4, Employee’s Withholding Certificate. This form gives your employer the information needed to determine how much federal income tax to withhold from each paycheck. The payroll system uses this information, along with your pay rate and frequency, to estimate your annual income from that job and calculate the appropriate withholding.

A primary reason for the discrepancy is how the standard deduction is treated. For the 2024 tax year, a single individual is entitled to a $14,600 standard deduction, which reduces their taxable income. Your employer’s payroll software assumes you will receive the full benefit of this deduction against the wages they pay you and prorates this amount over each pay period.

The system also accounts for the progressive nature of U.S. tax brackets. For 2024, the first $11,600 of taxable income for a single filer is taxed at 10%, and income from $11,601 to $47,150 is taxed at 12%. Each of your employers’ payroll systems assumes your earnings will start filling these lower brackets first. This method is reasonably accurate when there is only one source of income.

The Impact of Combining Incomes on Your Tax Return

When you file your tax return, Form 1040, all sources of income are aggregated to determine your total tax liability for the year. This is where the withholding from each job can prove insufficient. The tax system applies the standard deduction and tax brackets only once to your total combined income, not multiple times for each job.

For example, a single individual has a primary job earning $50,000 and a second job earning $25,000. The first employer calculated withholding assuming a $50,000 income, applying the full $14,600 standard deduction and using the 10% and 12% tax rates. The second employer performed a similar calculation for the $25,000 income, also applying the standard deduction and lowest tax brackets.

On the tax return, this individual must report a total income of $75,000. After applying the single $14,600 standard deduction, their taxable income is $60,400. The first $11,600 of this is taxed at 10%, the next portion up to $47,150 is taxed at 12%, and the remaining income is pushed into the 22% tax bracket. Because both employers calculated withholding using only the lower tax rates, not enough tax was withheld to cover the liability from the higher 22% bracket.

The final tax return calculation compares the total tax liability on the $75,000 income with the total taxes withheld by both employers. The shortfall between what was paid in and what is owed causes the refund to disappear or become a balance due. This is a reconciliation of withholding that was based on incomplete information from separate payroll systems.

Using the W-4 to Correct Withholding for Multiple Jobs

To prevent a surprise tax bill, you can adjust your withholding during the year using Form W-4. The form has sections designed to help taxpayers with multiple jobs withhold an adequate amount of tax. Managing your W-4 is the most effective way to align your withholding with your actual tax liability.

The simplest option for two jobs of similar pay is in Step 2(c) of the Form W-4. Checking this box on the W-4s for both jobs signals each employer to cut the standard deduction and tax brackets in half for their calculations. This method approximates the tax on your combined income, leading to more accurate withholding.

For more than two jobs or for jobs with significant pay differences, a more precise calculation may be needed. The Form W-4 provides a “Multiple Jobs Worksheet” on page 3 to determine the total extra tax to be withheld. This final figure is entered in Step 4(c) of your Form W-4 as an additional amount to withhold each pay period.

The most accurate method is the IRS’s online Tax Withholding Estimator. This tool uses your detailed income, dependent, credit, and deduction information to calculate your projected tax liability. The estimator provides a specific recommendation for filling out your Form W-4, including a precise dollar amount for extra withholding. You can then submit a new Form W-4 to your employer.