9 Reasons You Might Owe Money to the IRS This Tax Season
Tax season can be a time of either anticipation for a refund or anxiety over owing money. Many factors can lead to an unexpected tax bill. Here are nine reasons you might owe money to the IRS this tax season:
1. Under-withholding from Paychecks: If too little tax was withheld from your earnings throughout the year, you’ll end up having to pay the difference.
2. Self-Employment Income: Freelancers and independent contractors often owe money because they’re responsible for paying self-employment taxes and may not make adequate quarterly tax payments.
3. Additional Income: Income from a second job, investments, or rental properties that didn’t have taxes withheld can result in a tax liability.
4. Changes in Marital Status: Getting married or divorced can change your tax bracket, leading to potential discrepancies in how much you owe.
5. Child Tax Credit Changes: If you received advance payments of the child tax credit, it could offset the amount you’d typically get as a refund, or you might even owe if those advance payments were overestimated.
6. Inaccurate W-4 Form: Filling out a W-4 form incorrectly can mean not enough tax is taken out of your paycheck initially, leading to a balance due come tax time.
7. Owing Additional Taxes: Specific other taxes, like additional Medicare or Net Investment Income Tax if you exceed income thresholds, can catch taxpayers by surprise.
7. Failure to Report All Income: Neglecting to report all taxable income, including smaller side jobs or gig work, will increase your tax liability since the IRS may receive this income information from other sources.
8. Errors on Your Tax Return: Simple mistakes like math errors, forgetting deductions, or incorrect bank information for direct deposit can cause discrepancies and potentially lead to owing money.
Understanding these reasons can help you adjust your withholding and reporting habits to prevent unpleasant surprises when filing taxes.