The Top 6 Reasons You’re Going To Owe Money In Taxes This Year

According to the IRS, 18.6 million individual Americans reportedly owed the agency a combined $360 billion in overdue taxes in 2022. Ideally, you should not be getting a large bill or a big check from the IRS.

“The goal with taxes is to not overpay or underpay,” said Tiffany Watson, the CEO of All Aboard Financial, a virtual accounting and financial consulting firm based in Tampa, Florida. “So if you can, you tweak it so that you can get it just right where you don’t expect anything back or you’re not paying the IRS ––That’s the sweet spot.” 

You don’t want to be caught off-guard with a hefty bill after filing ― especially with no understanding of why. Here are the most common reasons people may owe money to the IRS after filing taxes this year: 

1. You didn’t adjust your withholdings after a major life change. 

The most common reason why taxpayers end up owing money to the IRS is because they did not have enough money taken out of their paychecks throughout the year, according to tax experts.

When employees first start a job, they fill out a W-4 form, which determines how much money is withheld from their paychecks for taxes. But you are supposed to update your W-4 after every major life change like marriage, divorce, the loss of a spouse, the birth or adoption of a child, a new home, or getting a second job because those life events can immediately impact the taxes you’ll owe. 

“What I usually see is that people just don’t make adjustments. They do it that one time, and then it’s like ‘out of sight, out of mind.’ But whenever you have a life change, you should be adjusting your W-4 at your employer,” Watson said.

The IRS has an online Tax Withholding Estimator that can help you estimate if you need to change your withholding with your employer. If you determine that you need to do so, you can do this by submitting a revised W-4 to your company. 

2. You didn’t pay self-employment taxes. 

Did you start a business or pick up side gigs last year? If you earned more than $400 during the year as a self-employed individual, you are supposed to be paying self-employment taxes throughout the year.

Minnie Sage, the program director of Tax-Aid, a nonprofit that provides free tax services to the San Francisco Bay Area, said a big confusion for new gig workers doing DoorDash or Uber is them not understanding that they are classified as self-employed workers by the government.

“They just don’t know the ins and outs,” she said. “They don’t know that they have to pay quarterly taxes,” she said. But if you’re self-employed and you don’t pay taxes in quarterly estimates, you’re going to get an expensive surprise from the IRS in the spring.  

“For some reason, they don’t take out the tax, they don’t set anything aside,” Watson said. “I always recommend, especially for my self-employed individuals, to have a separate savings account … where you set money aside to pay your taxes because if not, they’re going to be hit with a large tax bill at the end of the year.”

If you didn’t get your math right, you may end up with an underpayment penalty you’ll need to pay in addition to your self-employment taxes.

3. You didn’t pay a capital gains tax.