Why Do I Owe Taxes if I Claim 0 on my W4? | Hall Accounting Company (2024)

When you start working for an employer, they need to calculate the appropriate federal income tax withholding from your paycheck. For this, you need to fill a W4 form, including your exemptions and allowances. You may ask yourself, "do I claim 0 or 1 on my W4?" In theory, the fewer allowances you claim, the less money you owe the IRS.

Sometimes, though, you may claim 0 allowances on your W4 but still owe taxes. Here, we will talk about why you owe taxes despite claiming 0 on the form.

What is a W-4 Form?

An IRS W-4 tax form is a form an employer uses to determine how much federal income taxes they need to withhold from an employee's paycheck. This form includes the number of allowances and personal exemptions you will receive on your payday. You need to fill this form the day you join a company.

Your employer uses this W4 form until you fill a new one. You often need to fill a new W4 when your financial position changes. This form is important because it tells the accountant of the company how much your paycheck adds up to.

If you claim more allowances, your employer withholds a smaller amount from your paycheck. You then receive more money. However, this also means that you will not get a refund, and you may even owe some money to the IRS. Claiming few or no allowances means you will be eligible for a refund.

You can either hire a CPA to handle your taxes or do them yourself. Either way, knowledge of how a W4 form works is necessary.

Why Do I Owe Taxes if I Claim 0 on my W4? | Hall Accounting Company (1)

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How Many Allowances Should You Claim?

The number of allowances you should claim depends on some personal circ*mstances. This includes relationship status, children, and how long you have been at a job.

The best idea is to find a balance. You should not claim too many allowances, or you might end up having to pay the IRS. Claiming 0 allowances means that too much money will be withheld by the IRS.

The allowances you can claim vary from situation to situation. If you are married with a kid, you can claim up to three allowances. If you want a higher tax return, you can claim 0 allowances. If you are married and have two kids, you can claim three or more allowances.

If you are single, you can claim 1 allowance. If you have one job, you can request 2 allowances. If you are single with a kid, you can claim 2 allowances. However, you should always be cautious of the tax return.

With 2 kids, when you are single, you can claim 2 allowances. For more than two kids, you can claim an additional allowance for each kid.

A married couple with no children can claim 1 allowance each. You should note that if someone else mentions you as a dependent, you will not get any allowances.

In the case of children, you can claim up to $1,000 per child tax credit provided that they are under 16.

Why Do I Owe Taxes If I Claim 0?

If you claimed 0 and still owe taxes, chances are you added “married” to your W4 form. When you claim 0 in allowances, it seems as if you are the only one who earns and that your spouse does not. Then, when both of you earn, and the amount reaches the 25% tax bracket, the amount of tax sent is not enough. You will hence need to pay the IRS some money.

The amount of income you and your spouse earn combined goes too close to the standard deduction, which does not contribute to under-withholding. With two W2s, a doubling of the tax bracket occurs, resulting in insufficient tax credits when claiming 0 allowances.

Another thing that can lead to you owing taxes is if there is a huge disparity in income.

Why Do I Owe Taxes if I Claim 0 on my W4? | Hall Accounting Company (2)

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How to Fix This Problem

One thing you can do if you owe taxes after claiming 0 is to set your status to single. You can also request additional withholding on your W4. To do this, use M-0, M-0 on Line 6, or use this tool.

You and your spouse can also use Single withholding tables. For this, check the “Married but withhold at higher Single tax rate.” Then, there is a chance you can utilize S-2, S-2. This way, instead of the married tax bracket, the IRS will see your withholding tax using the Single bracket. This is half the amount of the married bracket.

To ensure that you will not owe taxes, divided next year’s income by this year’s income. Multiply the amount by the tax rate. Divide this number by the number of paydays remaining in the year. Enter the amount you get in Line 6 of the form.

Should I Claim 0 or 1 if I am Married?

As mentioned above, claiming 0 when you are married may result in your combined income reaching the tax bracket. You will then owe some taxes. A good option, therefore, is to claim 0 with an additional amount withheld.

You can also claim single and 1 allowance or single and 0 allowances to make up for this amount.

Why Do I Owe Taxes if I Claim 0 on my W4? | Hall Accounting Company (2024)

FAQs

Why Do I Owe Taxes if I Claim 0 on my W4? | Hall Accounting Company? ›

If you claimed 0 and still owe taxes, chances are you added “married” to your W4 form. When you claim 0 in allowances, it seems as if you are the only one who earns and that your spouse does not. Then, when both of you earn, and the amount reaches the 25% tax bracket, the amount of tax sent is not enough.

Why do I owe taxes if my W4 is correct? ›

Another common reason you might owe taxes — even if you filled out your W-4 so that your employer withholdings should have matched your tax liability based on your pay — is that you didn't account for additional income received from sources other than your primary employer.

Why is my taxable income 0 but still owe taxes? ›

Sounds like you have self-employment tax for the consulting income. That is for Social Security and Medicare. You have self-employment income for which you will pay self-employment tax for Social Security and Medicare.

How do I fill out a W4 to avoid owing taxes? ›

How to use a W-4 to owe nothing on a tax return
  1. Use the correct tax filing status. ...
  2. Make sure your W-4 reflects your current family situation. ...
  3. Accurately estimate your other sources of income. ...
  4. Accurately estimate your deductions. ...
  5. Take advantage of the line for extra withholding.
Apr 8, 2024

Why do I owe $1500 in taxes? ›

If your personal or financial circ*mstances have changed, you may end up owing taxes to the IRS when you usually get a refund. Common reasons include underpaying quarterly taxes if you're self-employed or not updating your withholding as a W-2 employee.

Why do I owe taxes if I claim 0 on W4? ›

If you claimed 0 and still owe taxes, chances are you added “married” to your W4 form. When you claim 0 in allowances, it seems as if you are the only one who earns and that your spouse does not. Then, when both of you earn, and the amount reaches the 25% tax bracket, the amount of tax sent is not enough.

How to get the most out of your paycheck without owing taxes? ›

To receive a bigger refund, adjust line 4(c) on Form W-4, called "Extra withholding," to increase the federal tax withholding for each paycheck you receive. Tax withholding calculators help you get a big picture view of your refund situation by asking detailed questions.

Why do I owe taxes if I make so little? ›

Common reasons for owing taxes include insufficient withholding, extra income, self-employment tax, life changes, and tax code changes.

Why do I owe taxes if I pay taxes? ›

It could be one big change or several changes that made an impact: Filing changes – But big life changes, such as marriage, divorce, retirement or adding a dependent (having a baby, adopting) can affect the your tax situation such as the filing status for which you are eligible and other aspects of how you are taxed.

Is it better to claim 1 or 0 on your taxes? ›

Claiming 1 on your tax return reduces withholdings with each paycheck, which means you make more money on a week-to-week basis. When you claim 0 allowances, the IRS withholds more money each paycheck but you get a larger tax return.

Is it better to owe taxes or get a refund? ›

The best strategy is breaking even, owing the IRS an amount you can easily pay, or getting a small refund,” Clare J. Fazackerley, CPA, CFP, told Finance Buzz. “You don't want to owe more than $1,000 because you'll have an underpayment penalty of 5% interest, which is more than you can make investing the money.

How do I ensure I don't owe taxes? ›

Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time. Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.

How do I fill out a w4 to get the most withheld? ›

By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period.

What is the average tax return for a single person making $60,000? ›

If you make $60,000 a year living in the region of California, USA, you will be taxed $13,653. That means that your net pay will be $46,347 per year, or $3,862 per month.

Why are people owing taxes in 2024? ›

As the 2024 tax deadline approaches, you may be in the position of expecting to owe money to the IRS. This may be the case if you made over $20,000 from a side hustle in 2023, you earn self-employment income (such as through a freelance gig), or you entered a new tax bracket.

Why are so many people owing taxes this year? ›

The most common reason why taxpayers end up owing money to the IRS is because they did not have enough money taken out of their paychecks throughout the year, according to tax experts. When employees first start a job, they fill out a W-4 form, which determines how much money is withheld from their paychecks for taxes.

Why do I owe taxes when I make so little? ›

Common reasons for owing taxes include insufficient withholding, extra income, self-employment tax, life changes, and tax code changes.

What to do if W4 is wrong? ›

If the amount under/over withheld is deemed too excessive, the IRS can send a lock-in letter notifying the employer how to adjust withholding regardless of the employee's W4 requests. If a W-4 error is caught before filing, individuals can correct this relatively easily by refiling a W-4 with their employer.

How to stop owing taxes? ›

You need to have enough tax withheld throughout the year to avoid underpayment penalties and interest. Underpayment penalties are separate from the lying penalties described above; they apply even if you've made an honest mistake.

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