Common Reasons Why You Owe Taxes This Year (2024)

Filing your taxes doesn’t just involve filling out all the boxes but also making sure you are keeping track of what is being withheld from your paycheck for the 2023 tax year and what you now owe the IRS. Taxpayers can expect less in refunds this year because of certain relief effort rollbacks and other tax credit changes. Read on to learn why you may owe taxes this year.

Why Do I Owe Taxes This Year?

If taxes are due this year, the primary reason could be insufficient tax withholding from your salary. You might also owe taxes if you were self-employed, workedside gigsor had major life changes. Here is a closer look at eight reasons you might owe.

1. Claimed Too Few Allowances

The more allowances you claimed last year on your W-4 form as an employee, the less tax the IRS will withhold from your paycheck, and the more you’re likely to pay at tax time this year. Make the appropriate changes to the form moving forward to avoid paying more in taxes.

2. Self-Employment and Side Hustles

Tax experts would tell you that if you worked a side gig, part-time or were self-employed in 2023, your taxes could change this season. Not having made estimated quarterly payments to cover your total tax liability, you will probably have to pay those taxes in a lump sum when you file this year.

For example, if you did freelance work in the gig economy or drove for platforms like Uber, any extra income you earn is generally taxable. If you didn’t pay enough taxes on this additional income throughout the year, you could owe taxes when you put your numbers into the tax calculator and file.

3. Major Life Changes

Perhaps you got married, bought a house or your employment status changed last year. Any of these life-changing events will affect your taxes. Getting married can change your tax bracket, which is the highest imposed rate of tax on your income. Your income is combined with your spouse’s when you file a joint return and may be taxed at a higher rate than when you were single.

If you purchased a home in 2023, you won’t qualify for any tax deductions because most of the expenses incurred when buying a home are not deductible during the year of purchase. One exception is prepaid mortgage interest points, but you must meet specific qualifications to deduct these points.

If you started a new job last year, remember that the allowances you claimed on your W-4 will determine how much tax is withheld from your pay. Additionally, any supplemental wages earned, such as moving costs, bonuses or severance pay, are taxable. Different IRS rules apply depending on how much you received for these payments.

4. Pandemic Relief Changes or Other Effort Rollbacks

Certain credits were provided to many taxpayers during the COVID-19 period. Some of these tax credits that were increased during the pandemic started going back to their pre-pandemic amounts last year and are continuing to do so this year such as:

• Stimulus payments
• Deducting charitable donations without itemizing
• Earned income credit
• Dependent care credit
• The child tax credit

5. Not Enough Withholding From Your Paycheck

When you get paid, your employer takes out a portion of your paycheck for taxes. This is called withholding. If you didn’t have enough taxes withheld from your paychecks throughout the year, you might owe money when you file your form W-4.

Your W-4 form determines how much tax your employer withholds from your paycheck so a failure to adjust it could result in you owing more money this year. If you didn’t update your W-4 after experiencing changes in your financial situation, you might have had too little withheld.

6. Underpayment of Estimated Taxes

If you’re self-employed or earn income that doesn’t have taxes withheld, you’re responsible for paying estimated taxes throughout the year. If you didn’t pay enough in estimated taxes, you might owe the difference when you file your return.

7. Tax Law Changes

Tax laws can change from year to year. Sometimes these changes can affect how much you owe in taxes. For example, certain deductions or credits you were able to claim in the past might not be available anymore, resulting in a higher tax bill.

8. Unforeseen Circ*mstances

Sometimes unexpected events can lead to a higher tax bill. For example, if you cashed out investments or received a large bonus, you might owe more in taxes than you anticipated. It helps to have an emergency fund you put some savings into instead of just relying on your checking account if you consistently owe in taxes.

Final Take To GO

How can you avoid owing taxes this year? When taxpayers underpay their taxes, the IRS imposes penalties that can add up to several hundred dollars or more. To avoid paying these penalties and more in taxes, consider adjusting your withholding allowances or the amount of your estimated tax payments. This is advisable, especially if you had a significant life change such as a marriage, a new child, a new job or more than one job.

Lauren WardandCaitlyn Moorheadcontributed to the reporting for this article.

The article above was refined via automated technology and then fine-tuned and verified for accuracy by a member of our editorial team.