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

FAQs

Why do I owe so much on my tax return this year? ›

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.

Common reasons for owing taxes include insufficient withholding, extra income, self-employment tax, life changes, and tax code changes.

Your employer reports your wages and withholdings to the IRS, but that data paints an incomplete picture. 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.

As the 2024 tax deadline approaches, you may be in the position of expecting to owe money to the IRS. This may be the case if you made over $20,000 from a side hustle in 2023, you earn self-employment income (such as through a freelance gig), or you entered a new tax bracket.

In addition to the penalties mentioned, failing to pay or to make an agreement with the IRS to pay your taxes over time can sometimes lead to more severe consequences, such as a federal tax lien on your property. The IRS could also possibly seize certain assets or garnish your wages.

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.

A simple method is to plug different numbers of withholding allowances into a paycheck calculator until it hits the amount closest to the federal tax that you want to have withheld for each pay period going forward. If you don't have enough tax withheld, then you could be subject to penalties.

That includes withholding too little on your W-4, your income changing, contributions to your FSA or HSA changing, or withdrawing from your retirement account. Here's a look at some events that could leave you without a refund.

Does the IRS tell you how much you owe in taxes? ›

When we assess tax owed on your account, we mail you a notice or letter. The notice or letter will tell you about the taxes, any penalties and interest, the reason for the charge and next steps. For more information, see Understanding Your Notice or Letter.

The IRS may allow you to pay any remaining balance over time in monthly installments through an Installment Agreement or possibly even settle for less than the full amount owed through its Offer in Compromise program.

It just depends on your situation. If you are single, have one job, and have no dependents, claiming 1 may be a good option. If you are single, have no dependents, and have 2 jobs, you could claim both positions on one W-4 and 0 on the other.

Claiming 1 on your tax return reduces withholdings with each paycheck, which means you make more money on a week-to-week basis. When you claim 0 allowances, the IRS withholds more money each paycheck but you get a larger tax return.

How much you have withheld each paycheck is a function of your earnings and what you claim on your W-4. If you owe money, it is due to not having enough withheld during the year to cover your tax liability. You can revisit your W-4 with your payroll department to adjust your withholding accordingly.

If you owe more than you did in the previous tax year, it may be because you elected to take fewer deductions. Some examples include: Skipping an IRA contribution. Fewer charitable contributions.

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.