Hello, I’m Tammy from TurboTax with some important information for taxpayers who still owe tax when filing their return.
If you finish your tax return and are confused as to why you need to send the IRS a check, there is only one possible explanation for this: you paid less tax during the year than you owed for your income level. The reasons for this situation, however, can vary—but you can easily prevent this from happening next year if you get to the root of the problem.
If you are employed by a company, the IRS requires your employer to withhold a portion of your salary to pay your federal taxes. The amount withheld depends on a number of factors—but you do have some control over how much is taken out of your paycheck. The W-4 form you filled out when you started your job allows you to modify how much tax is withheld from your paychecks. The good news is, you can fill out a new W-4 form any time you’d like, and if necessary, you can increase your withholding to avoid a nasty tax bill at the end of the year.
If you are unfamiliar with the W-4 form, you should understand how allowances work before making adjustments to it. Essentially, each allowance you report represents a reduction to your taxable income--such as for the dependent exemptions you anticipate claiming on your tax return. The more allowances you report on your W-4, the less tax that is withheld from your paycheck. If you report more allowances on your W-4 than dependents on your tax return, you could end up writing a check to the IRS come tax time. This is just one example.
You can test different scenarios using the W-4 Calculator on our Tax Calculators and Tips page at TurboTax.com.
This can help you get the outcome you want next year– whether it’s a big tax refund or more money in your paychecks week to week. Self-employed taxpayers, though not subject to withholding, can face similar issues when they fail to make estimated tax payments. As a self-employed taxpayer, you have an obligation to make up to four of these estimated tax payments to the IRS throughout the year. If you don’t report any income until you file your tax return—you’ll have no choice but to make one larger tax payment. But you should also realize that the IRS may charge you interest and penalties for failing to make sufficient quarterly estimated payments.
Whether you are expecting to pay, or get a big tax refund, TurboTax will guide you step by step to help you get all the tax breaks you have coming.