TurboTax behavior for married filing jointly with different income levels

Question

I observe behavior whenever we file our taxes that I do not understand. It's not that I think TurboTax is making a mistake, I am just wondering why it behaves this way.
Let's say these are our (made up) details:
Spouse A income: 100k
Spouse A withholding: 10k

Spouse B income: 30k (50k with 20k into a 403b)
Spouse B witholding: 4k

When I enter all this data, I see the following behavior
After entering Spouse A first I see a 4k refund
After entering Spouse B the 4k refund goes away and I see we owe 1k
This doesn't make sense to me because Spouse B is withholding a higher percentage of their income so, I would think, when we combine all the income together, Spouse B would increase the refund, not decrease it.
But, like I said, my assumption here is that I just don't understand something.

user102008 · Accepted Answer

The US has progressive tax brackets, meaning that the tax rates increase as you go up in tax brackets. For example, for 2020 for married filing jointly, the first $19,750 of taxable income is taxed at 10%; the next $60,500 of taxable income is taxed at 12%; and the next $90,800 of taxable income is taxed at 22%, etc. (And there's also effectively a "0% bracket" at the beginning become some amount of income is excluded from taxable income by the standard deduction, etc.)
So if you start adding income bit by bit, it will always at first seem like your effective tax rate is low, and effective tax rate will seem to go up as your income increases. That doesn't mean that later pieces of income are treated differently from earlier pieces of income.

Hilmar · Answer

I'm assuming you file jointly. The income of the second spouse is taxed at the "incremental" tax rate. In your case this income is taxed (more or less) in the 22% bracket, so the incremental tax on your spouses income would be $6600 dollars, which is more than the withholding.
You can do it the other way around and see the same effect: if you start with B you will see a large refund but once you add A, you'll end up in the same place.
Th exact numbers obviously depends a lot on your specific details and what else you have going on tax-wise.

TurboTax behavior for married filing jointly with different income levels

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