Owing taxes unexpectedly can be confusing. There are a variety of reasons this can happen, including receiving unemployment income or taking on an additional job.
Some of the most common explanations for owing taxes include:
Additional income
New sources of income: If you started receiving income that’s not subject to automatic withholding, you can end up owing additional tax. Examples include collecting a pension or Social Security (no tax or low tax withheld), selling investments (no tax withheld), and starting a home business (no tax withheld).
You earned more money, but didn’t increase withholding enough: This can happen when you have multiple jobs, since each employer withholds based only on what they’re paying you, and not your total income. The tax rate goes up as your income goes up, so the tax on your total income will be more than what was calculated.
(The TurboTax W-4 Withholding Calculator is a free tool to help you find the right withholding when completing a new W-4. You can use this info to boost your refund or increase your take-home pay.)
New worker in the family: If your non-working spouse returned to work during the tax year, your family withholding may not align with the higher tax rate. Since employers withhold tax based only on the income they’re paying you, combining your income with your spouse’s income might result in neither one of you having enough withholding to pay the increased tax rate on the combined earnings.
Fewer deductions
If you owe more than you did in the previous tax year, it may be because you elected to take fewer deductions.
Some examples include:
- Skipping an IRA contribution
- Fewer charitable contributions
- Fewer medical expense deductions
- Home mortgage interest (as you pay off your mortgage, interest decreases each year)
- State and local tax deduction (moving from a high-tax state to a low- or no-tax state may increase your federal taxes, causing you to lose the deduction for state and local taxes)
Fewer credits
You may owe additional taxes if you qualify for fewer credits this year. Some of the main credits include:
Change in filing status
Changing your filing status can have a big impact on your taxes. For instance, if you previously filed as Married Filing Jointly, and switched your status to Married Filing Separately, you’ll likely lose some tax breaks. Your income may stay the same, but the tax on that income may be higher than when you filed jointly.
FAQs
If you did not pay enough in estimated taxes, you could owe more when you file your tax return. Changes in income or deductions: If your income or deductions changed significantly from the previous year, it could impact your tax liability. For example, if you received a higher income than u.
Why do I always owe so much in taxes? ›
Common reasons for owing taxes include insufficient withholding, extra income, self-employment tax, life changes, and tax code changes.
Why do I owe taxes and not get a return? ›
In a nutshell, over-withholding means you'll get a refund at tax time. Under-withholding means you'll owe. Many people try to get as close as possible to even so they get more money in their paychecks during the year, but don't owe a lot or get a bigger refund at tax time.
Why do I pay so much in taxes and get nothing back? ›
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 with 0 exemptions? ›
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.
Should I be worried if I owe taxes? ›
The IRS could also possibly seize certain assets or garnish your wages. If you're worried that you can't pay on time, you may want to consult a qualified tax professional.
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.
How do you end up owing taxes? ›
Here are seven reasons why you might owe taxes.
- Your Tax Withholding Is Off. ...
- You Owe Taxes on Self-Employment Income. ...
- You Went Through Some Life Changes. ...
- You Qualify for Fewer Tax Deductions. ...
- You're in a Higher Tax Bracket. ...
- You Owe Capital Gains Taxes. ...
- Refigure Your Tax Liability. ...
- Adjust Your Withholding.
“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.
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.
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.
Why do I owe taxes if I only made 30k? ›
How much you have withheld each paycheck is a function of your earnings and what you claim on your W-4. If you owe money, it is due to not having enough withheld during the year to cover your tax liability. You can revisit your W-4 with your payroll department to adjust your withholding accordingly.
What is the average tax return for a single person making $35,000? ›
If you make $35,000 a year living in the region of California, USA, you will be taxed $6,243. That means that your net pay will be $28,757 per year, or $2,396 per month.
Can I still get a refund if no federal taxes were withheld? ›
It's possible. If you do not have any federal tax withheld from your paycheck, your tax credits and deductions could still be greater than any taxes you owe. This would result in you being eligible for a refund. You must file a tax return to claim your refund.
Why do I owe so much in taxes in 2024? ›
One common reason for owing taxes is inadequate withholding throughout the year. Review your W-4 form and consider adjusting your withholding allowances by contacting your employer.
Why is my employer not withholding enough federal taxes? ›
The amount of tax withheld from your pay depends on what you earn each pay period. It also depends on what information you gave your employer on Form W-4 when you started working. This information, like your filing status, can affect the tax rate used to calculate your withholding.
How much is too much to owe in taxes? ›
Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is ...
What to do if you owe taxes every year? ›
You can apply for a payment plan using the Online Payment Agreement (OPA) Application or you may complete Form 9465, Installment Agreement Request and mail it in with your bill. You may also request an installment agreement over the phone by calling the phone number listed on your balance due notice.
How to reduce taxes owed to the IRS? ›
8 ways to potentially lower your taxes
- Plan throughout the year for taxes.
- Contribute to your retirement accounts.
- Contribute to your HSA.
- If you're older than 70.5 years, consider a QCD.
- If you're itemizing, maximize deductions.
- Look for opportunities to leverage available tax credits.
- Consider tax-loss harvesting.
