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Disappearing Tax Software Refund?

If you’re married and started entering your income into tax software such as TurboTax [1], you might have noticed that your refund starts rather large and then suddenly drops when you enter your spouses’ income into the software.

This is a question I have been receiving regularly from visitors to CTR.

If this happens to you, then you are not alone! And if this happens to you, it’s probably quite normal.

The Software Starts Claiming A Dependent

Tax software is only as good as the information you put into it.

You are entering one spouses’ income at a time. If you start with your income first, your spouse will not have any income in the software.

The tax software then assumes your spouse has no income and claims the spousal tax credit [2]. The spousal credit is worth $1,557 of tax federally plus an additional amount for the provincial credit ($500 to $700 on average).

Spousal Credits Eliminated With Spouses Income

When you begin entering your spouses’ income, the spousal credit is reduced until their income exceeds the threshold ($10,382 federally for 2010).

The result is that you see a larger refund initially that is reduced or is gone when you enter your spouses’ income.

Here is an Example

Jack and Jill live in Ontario and each earns $50,000. Jack enters all of his income into TurboTax [1] and notices he get a refund of $2,262. Once he enters Jill’s information, the refund is gone.

Initially the software gave Jack a credit totalling $2,262 that was eliminated when Jill’s information was entered.

Final Thoughts

It may seem a little odd at first, but it is perfectly normal. There is nothing wrong with your tax software and it’s working just fine!

I hope this helps you prepare your taxes this year.