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More often than not a taxpayer is surprised with the resulting tax effect of having multiple jobs. At each of the jobs, the taxpayer is sure they are having enough federal income tax withheld to cover their tax when tax filing season comes around. However, that is not always the case and generally results in a substantially lower refund or greater amount of tax due than expected.
Here is an example of how your refund can change when you enter a second or third Form W-2 in your tax return.
Let’s assume that you have (2) Forms W-2 for tax year 2013, both for exactly $10,000, and both have zero withholding in Box 2.
You enter your first Form W-2 into your tax software and it tells you that your taxable income is zero and your refund is zero.
This is how your tax would be computed:
W-2 Income of $10,000;
Less: Personal Exemption of $3,900 (the personal exemption amount for tax year 2013);
Less: Standard Deduction of $6,100 (the standard deduction amount for Single filing status for tax year 2013);
Equals taxable income of zero. The corresponding amount of tax would be zero.
Now, assume you enter the second Form W-2. The amount of your tax changes. Here’s why:
Income from (2) Forms W-2 equals $20,000 ($10,000 each)
Less: Personal Exemption of $3,900
Less: Standard Deduction of $6,100
The taxable income is now $10,000 ($20,000 less $3,900 and $6,100).
Assuming a 10 percent tax rate, the tax due would be $1,000.
In the first w-2, the personal exemption and standard deduction were enough to offset the income completely, but when the second Form W-2 is entered, the same amount of personal exemption and standard deduction now applies to the total of the two. That’s why the amount of refund or tax due changes when a second Form w-2 is entered.
In other words, the higher the income, the less effect the personal exemption and standard deduction have on your overall tax situation.
In addition, there is a possibility that the second or third Form W-2 put you into a higher tax bracket. Many times, when someone has multiple jobs, the employers withhold at a lower tax rate, based on the information you have provided them on Form W-4. But when the income from all Forms W-2 is added together, your tax on the combined amount is greater than that of the tax computed on the individual amounts at each separate employer.
One way to circumvent this problem is by having your second or third employer withhold extra federal income tax from your paycheck. You can do this by filing a new Form W-4 with your employer and indicating the amount you wish to be withheld in addition to the regular withholding.
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