Many taxpayers begin their filing process with an online tax calculator. Oftentimes, we expect the same result as last year – a refund. But what if the calculator amounts to owing taxes instead of getting a refund? You might ask yourself, “Why do I owe taxes? What changed?”
While this news can be shocking and disappointing, our team at O’Bryan Law Offices is here to offer advice on why you might owe taxes, and on how to proceed. We also have a blog titled TIN vs EIN that provides insight on how to fill out certain tax forms.
I got a refund last year. Why do I owe taxes this year?
If you got a full refund last year, you’ll probably get one this year, too. However, this is only true if your tax situation has not changed. Tax years 2018 and 2019 were a little different in terms of withholding. With the Tax Cuts and Jobs Act, the IRS introduced new withholding tables. For many people, this meant withholding less, and getting a slightly larger paycheck. Consequently, this also resulted in a lower refund, or in some cases, owed taxes.
Now let’s look at 2020. You may have gone from a refund to owing taxes, but your tax situation hasn’t changed. Why is that? For some, it could be that the timing of those withholding changes is to blame. In 2019, the withholding changes were in place for the full 12 months of the tax year, while they were only in effect for 10 months. Those two months of higher withholding might have cushioned against owing anything in 2018. If this sounds like you, we recommend filling out a new W-4 form to make sure your withholdings are correct.
If this doesn’t sound like you, there are some other reasons that could explain your owing taxes. We’ll explain more on that below.
What are some reasons why I would owe taxes?
Let’s start with a simple question: What has changed about your personal tax situation? Any of the below changes could have impacted your tax refunds or owings.
- Job Change – You or your spouse might have found a new job in the last year. You would have completed a new W-4, and any minor changes in how you filled it out could have affected your withholdings for each pay period.
- Filing Change – Maybe you got married, divorced, or claimed a dependent. All of these changes affect your filing status eligibility, as well as how you’re taxed. Going from Married to Single affects your credits, deductions, and your tax bracket. In addition, make sure that, if you’re married, you discuss with your spouse whether you want to file jointly or separately.
- Extra Income – Maybe you have a job on the side, like a freelance or contract position. Generally, these types of workers are responsible for paying their own quarterly taxes. There are no withholdings for these workers, so you must keep up with your own payments. If you have a job like this, but have been failing to pay these quarterly taxes, it could lead to owing the IRS.
- Credit and Deduction Eligibility Changes – Many different changes in your life could have affected your eligibility for different credits and deductions. You might have experienced a change in your income or a change in your college enrollment status. Both of these affect your eligibility for certain tax credits.
- Growing Children – The Child Tax Credit saw a notable increase after recent tax reforms. This credit, now worth up to $2,000, is only eligible for children who were under 17 at the end of the year. If they did not qualify, you could still claim $500 for other dependents. However, a drop of $2,000 to $500 is significant, and could have affected your income significantly.
Why do I owe so much? Is there anything I can do about it?
First, ask yourself if you want more in your paycheck or if you want to receive a refund. If you’re a taxpayer who wanted the refund, we recommend the following.
The very first thing to do is update your withholding. If you don’t do this step, you’ll probably owe taxes again next year. Complete a new W-4 form, increase your withholding, and submit this change to your employer as soon as possible. The sooner you submit it, the sooner it takes effect. If you’re unsure about how to fill out these forms, the O’Bryan Law Offices can answer all your questions.
Maybe you owe money to the IRS, but you can’t pay. What now? Our experienced lawyers are here to discuss your options. We’re here to explain how you can pay back taxes in Kentucky and Indiana, if it’s a little too much right now.
How can I find out why I owe taxes?
At O’Bryan Law Offices, we’re committed to getting you all the tax help you need. Our office will walk you through everything that could have affected your refund or withholdings.
For More Questions, Contact O’Bryan Law Offices Today
Many people feel overwhelmed by taxes. At O’Bryan Law Offices, we will help take some of that stress away, and provide you with compassionate client service. Our Kentucky bankruptcy attorneys have an in-depth understanding of tax law to help clients like you get back on track.
If you’re in need of other assistance, such as bankruptcy, mortgage foreclosure, or business restructuring, we can help with that too. Contact O’Bryan Law Offices today, and get the legal financial help you need. Fill out our online form or give us a call at 502-400-4020 to get started.