Why do I owe so much in federal taxes this year? (2024)

FAQs

Why do I owe so much in federal taxes this year? ›

Want to make sure your tax bill is correct and not pay more than you owe when you file your federal tax return come tax season? At a glance: Common reasons for owing taxes include insufficient withholding, extra income, self-employment tax, life changes, and tax code changes.

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.

The IRS Needs More Than Your W2 Provides

Although the agency knows your income, only you know your credits, deductions and other key information needed to process your return and determine how much you owe the IRS or how much the IRS owes you.

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.

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.

Expired pandemic-era expansions for deductions and credits could result in a smaller tax refund this tax season. On the other hand, higher income thresholds for higher tax rates could lower your tax bill—or raise your refund. Changes in your personal situation might also affect how you fill out your tax return.

There are a lot of variables that affect your refund or tax due including how much you earned, how much tax you had withheld, your filing status, the number of dependents you claim, your deductions and credits, etc. You may have lost Earned Income Credit or the Child Tax Credit— did a child turn 17?

Why don't they just tell us? The IRS doesn't already know. Simple as that. They take a percentage out, and everyone has special circ*mstances…they have moved, they have invested personal time and effort and finances to make their income.

Want to make sure your tax bill is correct and not pay more than you owe when you file your federal tax return come tax season? At a glance: Common reasons for owing taxes include insufficient withholding, extra income, self-employment tax, life changes, and tax code changes.

Is it better to claim 1 or 0? ›

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. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.

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. The key is managing your withholding to get the result you are looking for.

If you want less taxes taken out of your paychecks, perhaps leading to having to pay a tax bill when you file your annual return, here's how you might adjust your W-4. Increase the number of dependents. Reduce the number on line 4(a) or 4(c). Increase the number on line 4(b).

While no one is exactly sure why, some point to changes in the way people work. Others suspect it has to do with the way the government calculates how much in tax should be withheld from people's paychecks. And the reversal of fortune could have consequences for how and whether people comply with tax laws.

Under-withholding from Your Paycheck

Under-withholding is the #1 reason individuals owe taxes. This occurs when not enough tax is taken out of your paychecks throughout the year. If you haven't updated your W-4 form after a major life change, income adjustment, or second job, you might find yourself in this situation.

"If you make more income, you're going to owe money," Steber said. If you didn't pay estimated taxes or have enough withheld on your W-4, that could mean you didn't pay enough taxes on that money throughout the year, he added.

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.

“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.