Why Do I Owe Taxes This Year It Could Be Due To Pandemic Impacts
If you received a refund last year, you generally could expect one this yearif your personal tax situation was the same. But, for so many people this last year, their situation was not the same. That said, the answer to why do I owe taxes this year? might have to do with economic shifts due to the coronavirus pandemic.
Receiving unemployment income, taking on an extra job or self-employment are all plausible causes for your refund amount changing from year to year.
Here are a few ways job and policy changes might have impacted your taxes.
If the scenarios above dont reflect your situation, there are other possible reasons why you owe the IRS. Read on to learn about other factors that may affect why you may owe taxes.
Kathryn B Hauer Certified Financial Planner
Hi! Thanks for writing! I am not sure if you are asking this question in a broad, rhetorical sense or if it is a question specific to you.
If your question is more general and you are wondering why governments tax their citizens or maybe why states levy income taxes in addition to the federal government doing the same, then my answer would be that taxes are needed to pay for the things and services and assistance that citizens share and need for daily living. Im not a government expert, so I dont really know exactly what items Federal tax money pays for and what each state has to cover but things like roads, schools, benefits, defense, government salaries, protective agencies, etc. Here is a link to check out what Federal income tax dollars are actually spent on . States also need to fund the same kinds of community support programs and services. The states that have no income tax use sales taxes and /or property taxes to fund their governments. Regardless of where the money comes from, each state needs to have some dollars to operate and to serve their residents.
I hope that I was somewhat helpful in answering your question! Please write back if we can answer other questions for you.
What Is Tax Withholding
Its vital to first understand that tax in the U.S. is governed by a self-reporting system. The government relies on taxpayers to report their own taxes to them, figuring out if they owe the government anything, or if theyre owed a refund.
In turn, understanding how tax withholding works forms an important part of reporting back to the Internal Revenue Service on your taxes. In this self-reporting system, the government wins by having to spend less time and money figuring out everyone elses taxes. But it does come with certain drawbacks.
On a political level, this puts hyperfocus on how much tax each citizen pays and could become a sore point for many when it comes to getting their paychecks and election times.
On a monetary level, it also means the U.S. government only gets to collect the tax owed once in a financial year. This turns the tax money into a sort of loan made to taxpayers that they eventually have to pay back.
So, to keep the wheels of the government turning, the IRS has to do tax withholding. The IRS estimates how much money you as a salaried employee also known as a W2 worker would eventually owe in taxes. They then take that money straight from your paycheck in the form of income taxes each time you are paid biweekly.
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You Did Not Account For Other Income Sources
Some incomes sources, such as gambling winnings and freelance earnings, are usually unaccounted for within your tax withholding information submitted to your employer.
For example, if you win a lottery, you may be responsible for withholding the taxes you will owe, especially if you live in a state that does not tax winnings. Thats because you still have to pay 24 percentin taxes at the federal level.
While gambling winnings are fully taxed, they are unlikely to be accounted for when you submit the tax withholding information. For that reason, the taxes your employer pays on your behalf from your paycheck are unlikely to account for them.
And you have to account for them as other income on Form 1040. Failure to do so may leave you wondering later on, Why do I owe money in taxes?
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The Consolidated Appropriations Act 2021 Clarifies The Tax Treatment Of Certain Loan Forgiveness And Other Business Financial Assistance Under The Cares Act Will New York State Follow This Federal Treatment
New York State follows the federal tax treatment resulting from these provisions in the federal Consolidated Appropriations Act, 2021, and they will automatically be reflected in the New York State personal income and corporation tax computation. Therefore, no adjustments to federal income will be required on the New York State personal income or corporation tax return.
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How Do I Check My Stimulus Check
The IRS says it sent out another 2.3 million payments this week. Some of those checks included more money for people who received less than they were entitled to in earlier payments. If you are still trying to find out the status of your stimulus check, you can visit the IRSs website and use the Get My Payment tool.
Penalty For Failure To Pay Or Underpayment Of Estimated Tax
Revised Statute 47:118authorizes a penalty for failure to pay or underpayment of estimated income tax. The penalty is 12 percent annually of the underpayment amount for the period of the underpayment.
Determination of the Underpayment Amount
Determination of the Underpayment PeriodThe underpayment period is from the date the installment was required to be paid to whichever of the following dates is earlier:
Notification of Underpayment of Estimated Tax Penalty
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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 youre using last years tax software or IRS forms, make sure there havent 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
- 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
Can I Have No Federal Income Tax Withheld
Exemption from Federal Income Tax Withholding If you fulfill the qualifications for exemption from federal income tax withholding, claim “exempt” on line 7 of IRS Form W-4. If you fulfill these two requirements, you can request that no federal income tax be deducted from your paycheck. Your employer must withhold at the highest rate of federal income tax from all wages paid to you as long as you claim your exemption on a timely basis .
If you do not claim any exemptions, your employer must withhold at the lowest applicable rate of federal income tax from all wages paid to you. That means if you claim only one withholding allowance on Form W-4, your employer should withhold at the highest rate of tax for that category of taxpayer. For example, if you claim to be exempt from federal income tax because you earn less than $5,250 , but also claim one withholding allowance, your employer should withhold at the highest rate of tax for those who earn between $60,000 and $80,000 .
There are two ways to ensure that you do not pay more than you need to in order to avoid having federal income tax withheld from your paycheck: Claim all the allowances claimed on Form W-4 or file an amended return for last year or this year claiming additional exemptions or credits beyond the number of allowances claimed on Form W-4.
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Why Do I Owe Taxes This Year Changes In 2020
By April 15 you should have filed your taxes.
Now, that’s not the same as saying that you will have paid your taxes. In fact you pay taxes all the time – provided you make the minimum amount required to file a tax return. That will vary depending on your filing status .
Most Americans pay their income taxes every two weeks through automatic federal and state withholding from each paycheck. And while many taxpayers will get some of that money back, everyone who earns an income pays the FICA tax that funds Social Security, Medicare and Medicaid.
Then there are sales taxes, property taxes and import taxes, which Americans pay all the time. In the end, although we think of April 15 as Tax Day, paying taxes is a day-to-day feature of life in a modern economy.
That doesn’t make April 15 any less complicated, and that’s particularly true this year.
Most Americans get a refund when they file their taxes. The system is designed that way. This year, though, tax refunds are down way down. By the beginning of April 2019 the IRS had issued about 1.64 million fewer refunds than it had by that same period in 2018. Individual refunds have only gone down by an average of $20 per taxpayer, but a lot fewer people are getting them. In fact, many Americans actually owe money on April 15 for the first time in their working lives.
Request For Copies Of Returns
Q. How do I request a copy of a tax return I have filed?
A. In order to give you this information, please provide your social security number, name, your filing status for that year, the amount of refund or balance due, and your address on the return at that time. You may email your request by clicking the personal income tax email address in the contact file, or contact our Public Service Bureau at 577-8200.
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How Do I Know If I Owe No Federal Income Tax
As a result, if your total tax on Form 1040 is less than your refundable credits, you owe no income tax. If you foresee the same result in the current tax year, you may be eligible for a withholding exemption. However, if you expect that your liability this year will be greater than your refundable credits, you should file Form W-4 to withhold appropriate amounts from your paychecks or your employer should withhold them for you.
You are required by law to submit a W-4 form. If you fail to do so, then the IRS will assume that you want any available withholding allowances claimed on Form W-4 to be withheld from your wages. As long as they continue to withhold taxes from your paycheck, you can claim that no tax is due. However, if they stop withholding taxes, then you must submit a new W-4 with all current allowances marked “X”.
The IRS publishes a list of which taxpayers are subject to penalties for failing to submit a valid W-4. If it is determined that you are liable for an accuracy-related penalty because you failed to provide full and complete information on your W-4, then it is possible that no tax would have been withheld from your paycheck had you submitted a proper form. You should contact the IRS to determine whether you are subject to such a penalty and what steps you can take to avoid being penalized.
New York State Tax Implications Of Recent Federal Covid Relief
The federal Coronavirus Aid, Relief and Economic Security Act , Consolidated Appropriations Act, 2021, and American Rescue Plan Act of 2021 contained a number of tax provisions that impact the computation of taxable income for individuals and businesses, modify eligibility for certain tax credits, and provide assistance to taxpayers and businesses affected by COVID-19.
New York State follows the federal tax treatment resulting from some of these federal provisions and they will automatically be reflected in the New York State personal income and corporation tax computations. However, others require state-specific adjustments on New York State personal income and corporation tax returns.
Below are questions and answers regarding New York States treatment of some of the most high-profile items. These and other provisions that require state adjustments are explicitly addressed in tax form instructions, such as Form IT-558-I, New York State Adjustments due to Decoupling from the IRC, and Form CT-225-I, New York State Modifications, . See Current year forms by form number to view the 2021 forms and instructions.
Generally, if a federal provision is not specifically addressed in the New York State form instructions, it means no separate adjustments are necessary at the state level.
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You Did Not Factor Local Taxes
If you forget that states charge some forms of tax, you may end up asking, Why do I owe money in state taxes?
When you live and do business in certain states, they may charge you income and payroll taxes. You may also be expected to pay sales and excise taxes. In addition, you may end up having to pay taxes on gifts and earnings from the assets you inherit.
It would be a mistake to ignore the state and municipal taxes for those reasons. And if you do so, you may owe money after filing taxes.
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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How Will I Know Why I Owe Taxes
The easiest way to keep track of your tax refund or bill and see the itemized reasons why your tax refund might have gone up or down is through a financial professional or service company.
This service could either be offered through an online filing system or with an in-person chat with a tax professional who can go through your taxes with you.
You Did Not Factor Your Employer Responsibilities
If you are self-employed, you may be required to pay taxes both as an employer and employee of your business in some circumstances.
For example, you would be required to pay self-employment taxes that cover twice the payroll tax contributions you would have made if you were employed. These taxes would cover Social Security and Medicare.
So, instead of paying 7.65 percent, you will need to pay 15.3 percent. Therefore, if you forget and pay only half, you will end up owing the IRS the other half at the end of the year.
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State Income Tax Vs Federal Income Tax Example
Consider a single taxpayer who lives in New Hampshire and reports taxable earned income of $75,000 a year plus interest income of $3,000 on their federal tax return. New Hampshire has a $2,400 tax exemption for the interest and dividends tax, so tax is only due on the remaining $600 of interest and dividends income.
This means that the taxpayer would pay just $30 in state taxes because New Hampshire taxes investment income rather than earned income over the exemption amount at the rate of 5%. This individual’s effective state tax rate on their total income of $78,000 would be 0.038%.
If this same person lived in Utah, all of their taxable incomeboth earned and unearnedwould be subject to that state’s 4.95% flat tax rate. In that case, their tax bill would be $3,861 .
In terms of federal taxes, in 2021, under the progressive system, this taxpayer would pay $995 on the first $9,950 of their income which falls into the 10% tax bracket. They would pay 12% on their income from $9,950 to $40,526 , and 22% on the amount greater than $40,526 for a total federal tax bill of $12,248.40. Their effective federal tax rate would be 16.3%.