Video: Why Would I Owe Federal Taxes?
You may owe taxes at the end of the year even if your employer withheld federal taxes from your paycheck. This is likely due to how many allowances you claimed on the W-4 you filled out when you were hired. Watch this video to learn more about the relationship between your W-4 and your tax refund.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
The IRS has revamped Form W-4. The content regarding changing "allowances" no longer applies to the new W-4 form.
Video transcript:
Hello, I'm Sara from TurboTax with some important information for taxpayers who need to make additional tax payments on April 15th.
Every year, certain taxpayers are surprised that they owe additional income taxes even though their employer withholds taxes from their paycheck each week. This is not as uncommon as you may think, and there are many reasons why it could happen.
Remember when you first started your job and your employer had you fill out a W-4 form? Well the more allowances you claimed on that form the less tax they will withhold from your paychecks. The less tax that is withheld during the year, the more likely you are to end up paying at tax time. But you can avoid this happening again by making changes to the form.
Essentially, the number of allowances you claim relates to your filing status and the number of dependents you anticipate claiming. If you over estimate your dependents or choose a filing status that you are ineligible for, then your withholding will always be less then the amount of tax you owe.
You need to remember that the W-4 form you fill out only applies to one employer. So if you earn income elsewhere, your withholding won't reflect this. You can correct this though. All you need to do is request additional amounts be withheld each period, regardless of the allowances you claim. You can select any additional amount you like to be withheld.
In a nutshell, over-withholding means you'll get a refund at tax time. Under-withholding means you'll owe. Many people try to get as close as possible to even so they get more money in their paychecks during the year, but don't owe a lot or get a bigger refund at tax time. The key is managing your withholding to get the result you are looking for.
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