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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. Even if you end up owing taxes, there are plenty of resources available to help you get back on track. To help you learn what to do every step of the way, this guide will cover the following topics :. To understand why you owe taxes this year, you need to know how income tax works. Most working Americans pay taxes to the federal government and their state government on their earnings each year.
From a federal perspective, withholding tax is the amount taken out of your paycheck and paid directly to the government before you even see it. Your employer will base the withholding amount on how much money you earn, as well as other important details you provide on your Form W Check out the best accounts to help you save money and reach your financial goals!
Another potential issue resulting in owed taxes is the failure to file them on time. Generally speaking, the annual due date for federal taxes is April 15 May 17 in State tax due dates may vary. Please note that The IRS has announced that the federal income tax deadline for individuals is May 17, for the tax year.
There have been several changes in the tax code in recent years that could significantly impact how much you pay in taxes.
Even if you typically expect a refund , this may not be the case with new tax laws. When the IRS updated its tax brackets, it may have impacted you and put you in a new category. Whether you earned a salary raise or worked a lot of overtime while getting paid hourly, either of those situations could have bumped you into a higher tax bracket.
While there are some exceptions, the IRS requires most people to file a tax return. The information you provide on your federal tax return is used to determine what you owe in federal income tax. So what determines if you owe federal taxes or get money back?
If you paid too much in taxes during the year through payroll withholdings, then you may get a refund. If you paid too little in withholding then you may owe additional tax. This return determines what you owe in state income taxes, based on your income and which tax deductions or credits you claim.
The tax bracket you land in at the state level can differ from your federal tax bracket, which is one reason you might owe state taxes but not federal. Again, whether you owe state taxes or get a refund can depend on how much you paid in tax throughout the year. Getting a state tax bill may come as a surprise but there are several reasons why you may owe money, versus getting a refund.
Again, the first thing to keep in mind is that state and federal tax laws and tax brackets work differently. If your income changed significantly and you earned more than in previous years, this could push you into a higher tax bracket at the state level.
That could result in owing more money in taxes. Next, consider what you withheld from your income during the year. Using an online paycheck calculator can help you get an idea of what you should be withholding. Changes in income can also affect your ability to claim certain tax credits.
If you can no longer claim that credit on your federal taxes you could lose any similar state tax benefits. The deductions you claim and whether you itemize or take the standard deduction can also affect your state tax bill.
Having fewer deductions than previous years, for example, could mean you have less to itemize. Or you might end up taking the standard deduction instead. Either way, that could affect your state tax liability and cause you to owe more money.
No longer being able to claim a child as a dependent. Taking Social Security benefits for the first time. Keep in mind that the same things that can result in you owing more state taxes could also increase your federal tax bill as well.
Otherwise, your state tax agency could charge you penalties and interest for each day your outstanding balance goes unpaid. That could end up adding to what you owe.
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