Changes In Your Tax Return
The kids grow up and move out, and suddenly you arent claiming them as dependents.
You refinance your home at a lower interest rate. Thats great, but your mortgage interest deduction may have been cut in half.
Even changes in the tax code can make a difference in your tax bill. If you dont adjust your withholding when things change, you may owe money.
Why Do I Owe So Much In Taxes Common Reasons & How To Avoid A Huge Tax Bill
Taxes arent fun, but unfortunately, they have to be done. Of course, that doesnt mean you cant make sure that you pay as little in taxes as possible.
Everybody loves receiving a large tax refund, but when the opposite occurs, many people find themselves in a difficult position where theyre expected to pay a large bill they arent prepared to pay.
If you find yourself asking, Why do I owe so much in taxes? every tax season, youve come to the right place. Today, youll find out the different reasons why you might owe more in taxes than you anticipated and learn some tips to help lighten your tax bill.
Adjust Your Tax Withholding
Once you know the total amount you will owe in federal taxes, the next step is figuring out how much you need to have withheld per pay period to reach that target but not exceed it by Dec. 31.
Then fill out a new W-4 form accordingly.
You don’t have to wait for your employer’s HR department to hand you a new W-4 form. You can print one yourself from the IRS website.
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Heres Why You Owe The Irs So Much In Taxes This Year
Many Americans cross their fingers at tax time, hoping for a huge refund from the federal government. At the very least, they want to break even. The vast majority of filers more than 70 percent do get money back from the government, with the average refund close to $3,000, according to the IRS. But every year, some taxpayers get a nasty surprise: They owe Uncle Sam hundreds or even thousands of dollars that they didnt budget for.
How can that be?
Simply put, if you owe a large sum in taxes, its likely because you kept too much of your paycheck during the year and had too little withheld automatically. If you owe more than $1,000, you also have to pay a penalty to the IRS.
This can come as a big shock to people who have had the same withholding as the year before, but didnt end up owing money previously. Any time you have a major life change such as getting married, having a child, retiring or starting a new job, you should re-evaluate your tax situation and update your withholding, says Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block.
The three changes below could result in an unexpected tax hit.
If you do need to change your tax withholding, figure out by how much. The IRS and other tax professionals offer an online W-4 withholding calculator to help determine your appropriate strategy.
Fill Out A Sample Tax Return
Another option is to complete a sample tax return for the year, either by using tax software or by downloading the forms you need from the IRS website and filling them out by hand.
This method should give you the most accurate picture of your annual tax liability.
If you’re using last years tax software or IRS forms, make sure there haven’t been significant changes to the rules or the tax rates that would affect your situation.
How To Get The Most Money Back On Your Tax Return
Also Check: How To File Past Years Taxes
When To Check Withholding:
- If the tax law changes
- When life changes occur:
- Lifestyle Marriage, divorce, birth or adoption of a child, home purchase, retirement, filing chapter 11 bankruptcy
- Wage income The taxpayer or their spouse starts or stops working or starts or stops a second job
- Taxable income not subject to withholding Interest, dividends, capital gains, self-employment and gig economy income and IRA distributions
- Itemized deductions or tax credits – Medical expenses, taxes, interest expense, gifts to charity, dependent care expenses, education credit, Child Tax Credit, Earned Income Tax Credit
You Took An Early Withdrawal From A Retirement Account
Did you make an early withdrawal from a retirement account, such as a 401, and didnt take into account the tax liability?
Often, a taxpayer will first receive a Notice of Deficiency from the Internal Revenue Service.
Once the NYS Department of Taxation and Finance picks up the early withdrawal, you can expect a tax notice regarding the increase in taxes due to New York State.
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Nonresidents Military Partial Residents Residents With Out
I am a resident of Missouri. Are the wages I earn in Missouri for “remote work” subject to Missouri withholding?
Yes. Any time an employee is performing services in exchange for wages in Missouri, those wages are subject to Missouri withholding. This applies in the case of “remote work” where an employee is located in Missouri, and performs services for the employer on a remote basis. This rule also applies if the service for which the employee is receiving wages is “standing down” .
I am a resident of Kansas. I am performing “remote work” at my residence in Kansas for a Missouri-based employer. Am I obligated to withhold Missouri tax from my wages?
No. If a nonresident employee performs all of his or her services outside of Missouri, the wages paid to that employee are not subject to Missouri withholding.
I am a nonresident with Missouri source income. Why am I required to include my non-Missouri source income on my return?
If you begin with only Missouri source income, your deductions will be too high. You must begin your Missouri return with your total federal adjusted gross income, even if you have income from a state other than Missouri. Your deductions and exemptions apply to your total income, not just your Missouri source income.
For more information, refer to the Resident/Nonresident and Military Status pages.
If I serve in the United States military, what income is taxable to Missouri?
If I am unable to file my return by the due date, can I get an extension?
Why Do I Owe Taxes
If youre like many taxpayers, getting ready to file starts with a quick check with a;tax calculator. You plug in your numbers and eagerly anticipate that final number. But when that last screen doesnt show a refund, you have to ask, why do I;owe;taxes? We get it. When you see you owe taxes, it can be somewhat of a shockespecially if you were planning on a nice refund. Well answer, why do I owe so much in taxes?. Then, well help outline what your next steps should be.
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If You’ve Been Overpaying
Unless you’re looking forward to a big refund, try increasing the number of withholding allowances you claim on the W-4.
Note that the IRS requires that you have a reasonable basis for the withholding allowances you claim. It doesn’t want you fiddling with its form just to avoid paying taxes until the last minute.
If you don’t have enough tax withheld, you could be subject to underpayment penalties.
Bear in mind that you need to have enough tax withheld throughout the year to avoid underpayment penalties and interest. You can do that by making sure your withholding equals at least 90% of your current year’s tax liability or 100% of your previous year’s tax liability, whichever is smaller.
You’ll also avoid penalties if you owe less than $1,000 on your tax return.
Why Does The Irs Overestimate Withholding
Ordinarily the;IRS writes its withholding tables to overestimate the amount an average taxpayer will owe. This makes economists and personal finance experts unhappy because, as they accurately point out, paying too much in taxes amounts to giving the government an interest-free loan for an entire year.
But most Americans actually love it. The too-high withholding system acts as a sort of forced savings account for most people, one that nets them a check for hundreds, if not thousands, of dollars every year.
This, too, was by design. Instead of making Tax Day the time when everyone cuts the government an enormous check, Congress made April 15 a day when the government pays them. From a political perspective, it really doesn’t matter that the;IRS is paying people with their own money. Tax refunds are popular.
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How To Check Withholding
- Use the instructions in Publication 505, Tax Withholding and Estimated Tax.Taxpayers with more complex situations may need to use Publication 505 instead of the Tax Withholding Estimator. This includes employees who owe, the alternative minimum tax or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties. The publication includes worksheets and examples to guide taxpayers through these special situations.
Why Do I Owe State
If you owe state income taxes, do a line by line comparison of;this year’s return versus last year’s return to identify;any differences.
;Also, double check the amounts you entered into TurboTax to make sure they were entered correctly.
Below are additional reasons why you may owe state income tax;compared to last year:;
- Your 2019 State Tax Withholding was lower;than 2018.
- You didn’t defer or you;deferred less income into your Employer-Sponsored Retirement Plan or Flexible Savings Plan.
- You didn’t qualify;for a tax credit you you received last year .
- You removed a dependent.
- You changed your filing status.
- If you didn’t itemize your deductions in 2019 but;you itemized your deductions in 2018 or you are using the Standard Deduction in 2019.
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Can You Owe Taxes In More Than One State
If you performed work in a state and tax was withheld from your income, you may owe or be due a refund from that state. If taxes were not withheld and you received a Form 1099 listing your earnings, you are not required to file in that state. However, your 1099 income is subject to taxation by your state of operation or residence.
If you lived in more than one state during the tax year, you must file a state income tax return for each state to determine your refund status. It does not matter how long you resided in that state.
If you worked in or earned income from more than one state, you may need to file a return even if you did not live in that state. For example, if you are a resident of California who contracted out to a company in New York and met one of these conditions, you need to determine refund status for both New York and California:
- You briefly traveled to New York for work or
- You worked remotely from your home state
- They get you coming and going.
Do you have questions about why you may owe California state taxes? Request a free 60 min strategy session with our senior legal team today to find out your options.;
Common Reasons Why You Might Owe Taxes This Year
Although most types of income are taxed, there are several reasons why you might owe the Internal Revenue Service, despite having money withheld from your paycheck all year. Explore some of the most common explanations for owing taxes and how you can avoid making underpayments in the future. Plus, find out what to do if your tax bill is exceptionally large and what payment options you have to get yourself out of tax debt with the IRS.
Also Check: Can You Change Your Taxes After Filing
Understand Your Tax Situation
Even if you owe taxes this year, use it as a learning opportunity to understand your finances better for the future. Keep track of how much you earn, what methods you use to earn money, and how your life changes over time. Its also smart to stay on top of tax-related news so you know about major changes that might affect you. Of course, anytime youre in doubt about how much you owe or what your payment options may be, talk to a professional. Its the best way to protect yourself and keep the IRS happy.
You Failed To Make Ny Estimated Tax Payments
If you are self employed and not making quarterly estimated tax payments, this can be the root cause of the tax problem.;
Often, I know there is a problem when I ask someone if they have been paying their federal and NYS estimated taxes and I get a puzzled look.;
If you are self employed, 1099,; or work on commission, you often dont get income taxes taken out of your income as you are paid during the course of the year.;
As such, you are required under the tax laws to remit and pay your estimated income taxes to the IRS and New York State every quarter.
If you have not been paying your estimated taxes during the year, it is difficult for many taxpayers to come up with the often large tax balances due when it comes to tax time.
To prevent a high tax bill in future, you will need to carefully manage your income tax withholdings and estimated tax payments.
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Why Do I Owe
Let us help resolve your compliance or collections problem. Learn about reasons why we think you owe us taxes, how we discover the information, what types of notices we send, and what to do about it.
Below you will find links for the most common reasons you may have a Maryland Individual tax liability. You may have received a notice in the mail from us and want more information about it.
If you have not paid your taxes due in full, or have not filed a Maryland return that we believe you should have, you will receive an income tax notice from the Comptroller of Maryland. If you do not respond to the first notice, an assessment notice will be issued. ;
Once you receive an assessment notice you will be billed for the amount of the assessment in addition to a substantial penalty and interest charge on the tax owed.
Use the links below if you’d like to learn more about the notice you received, how we determined that there was a problem, and what you need to do about it.
In all cases, if you have questions about the notice you received, or you can’t find your notice defined here, call the phone number on the notice promptly. By calling the number on your notice, you can find out how to resolve the dispute or file an appeal and Dispute It! Failure to respond to the notice may cause us to assess additional penalty and interest charges and result in further collections efforts.
This notice is to advise that a Notice of Lien of Judgment has been satisfied.
New Mexico Property Tax
Property taxes in New Mexico go to support local governments and schools. The states average effective property tax rate is 0.78%, which is the 18th-lowest rate in the country. If you are thinking about buying a property in New Mexico or refinancing a mortgage, take a look at our New Mexico mortgage guide. It has everything you need to know about New Mexicos mortgage rates and other mortgage-related details.
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Are There Changes For Child Tax Credits
Yes. Taxpayers have a new option this year: They can use their 2019 income instead of 2020, if its higher and will generally result in a larger credit. The provision is called the additional child tax credit.
In past years, the child tax credit could reduce your tax bill, dollar for dollar, by up to to $2,000 a child but if the credit exceeded your tax liability, you wouldnt get any money back in a refund. Thats where the additional child tax credit comes in: It lets you collect up to $1,400 a child as a refund, even if you dont owe any tax.
But eligible taxpayers must generally have at least $2,500 in earned income to claim the refundable portion, which is limited to 15 percent of earnings above $2,500.
The new relief law makes that credit more generous for 2021, particularly for low- and middle-income people.
Refigure Your Tax Liability And Withholding As Needed
Making sure youre having enough tax withheld or paid in estimated taxes is never a finished task.
Whenever your situation changes you get married or divorced, you take on a freelance project, for example recalculate your income if necessary and go through the Form W-4 section under the Next Year main tab in TaxAct again.
Its a little more work than just paying too much or hoping for the best, but it pays off by giving you a lot more peace of mind about your standing with the IRS.
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How Will I Know Why I Owe The Irs
Youve now read the answer to why do I owe money on my tax return? and more specifically, why do I owe taxes for 2020 returns?
As part of our commitment to keeping you informed, H&R Block is here to help you understand what could affect your refund or if youll owe tax.
- If you use our;online tax filing options, youll be able to see your refund results in real time. Plus, we explain why your results move up or down.
- If you visit one of our;tax offices, your tax pro can walk you through each credit and deduction to explain how it affects your refund.
Related Topics
Learn more about tax filing requirements and tax filing information with the experts at H&R Block.
