Are you wondering why you owe so much in taxes this year? Want to make sure your tax bill is correct and not pay more than you owe when you file your federal tax return come tax season?
At a glance
Common reasons for owing taxes include insufficient withholding, extra income, self-employment tax, life changes, and tax code changes.
To lower your tax bill, you can try adjusting paycheck withholding, voluntarily withholding tax on non-wage income, planning for self-employment taxes, and recalculating taxes when life changes occur.
If you can’t pay your tax bill immediately, set up an IRS payment plan through TaxAct when tax filing.
The fear of owing taxes
Filing federal and state taxes can be daunting for many filers; it’s no surprise that people tend to over-withhold from their pay, fearing they might owe the IRS even with their withholdings. Yet, most of us don’t seem as worried about owing money to other creditors. There seems to be something about owing taxes that causes dread in the hearts of taxpayers, but overpaying thousands of dollars in taxes “just to be sure you have enough” is not the best answer.
Did you know the average tax refund for tax year 2024 was $2,869? That’s a lot of money to be tied up all year when you could put it to better use. You wouldn’t overpay your electric bill by that much and think you scored when you got the excess back. So, why do we do that with our taxes?
Common reasons for getting a tax bill
There are many reasons why you may owe the IRS money at tax time. Here are six common reasons why people owe taxes.
1. Too little withheld from your pay
One common reason for owing taxes is having too little withheld from your paycheck. By adjusting your Form W-4 with your employer and making sure you aren’t withholding more than necessary, you can effectively give yourself a raise. However, this should be done with careful planning to avoid an unpleasant surprise at year-end. Make sure you have enough tax withheld, but not so much that you’re giving the government a big interest-free loan.
Additional income, such as capital gains from stock sales or unemployment benefits, can increase your tax bill, as they are not subject to withholding. For example, if you sell a stock, you may have more income than usual — and a bigger tax bill. Even unemployment benefits can increase your tax bill, so factor in these situations when thinking about how much taxes you might owe.
3. Self-employment tax
If you are small business owner, you may owe self-employment tax too. Self-employment tax covers your Medicare and Social Security taxes. These taxes are typically withheld from your paycheck for you as a W-2 employee, but if you are self-employed, you’ll need to pay them yourself.
4. Difficulty making quarterly estimated tax payments
If you have significant non-wage income, you generally make estimated quarterly payments. However, that can be easier said than done — especially when you feel like you are in financial survival mode. If you aren’t able to pay enough during the year, the IRS will expect you to make up for it when filing your federal income tax return.
5. Changes in your tax return
Life changes impact your tax bill as well. The kids grow up and move out, and suddenly, you aren’t claiming them as dependents. Or maybe you got a new job and had a drastic change in income, potentially bumping you into a higher or lower tax bracket.
6. Changes in the tax code
Even changes in the tax code can make a difference in your tax bill. For example, the One Big Beautiful Bill Act passed in 2025 included many tax changes, including a handful of new tax deductions. It’s always good to keep an eye on tax reform, or you may find yourself owing money if you don’t adjust your withholding when things change.
What to do if you owe taxes
The solution to your problematic tax bill depends on the cause. Below are some of the most common ways to handle your situation.
1. Refigure your paycheck withholding.
If you have too little withheld from your paycheck, you can create a new Form W-4. Thankfully, TaxAct® has a handy W-4 calculator1 to make it easy for you to avoid underpayment of taxes. Once you answer a few questions, we’ll help you fill out and print a new W-4 to give to your employer. If you have simple changes to your return, such as fewer dependents, you can make the necessary updates, and our software will determine how you should file.
Take the new Form W-4 to your employer’s payroll department. Please do not send it to the IRS.
2. Tax withholding from other income.
For non-wage income, you have the option to have income tax withheld voluntarily. For example, if you can swing it, you could withhold 10% of your unemployment benefits for taxes. That may hurt a little now, but it’s much less painful than a big tax bill next spring.
To have federal income tax withheld on government payments, including Social Security or unemployment benefits, complete Form W-4V from the IRS website and send it to the payer. Please do not send it to the IRS. You can have 7%, 10%, 15%, or 25% withheld from most government payments. There is one exception — you can only have 10% withheld from unemployment payments.
If you receive pension or annuity payments, adjust your income tax withholding on Form W-4P, available on the IRS website. If you do not tell an annuity payer how to withhold income tax, the IRS generally requires them to withhold as if you are married and have three dependents.
3. Plan for tax on your small business.
If you are self-employed, you’ll need to pay more income tax throughout the year.
Self-employment income may be sporadic, and it can be challenging to know how much you will owe in taxes after business tax deductions — especially with no one deducting from your pay. Naturally, it’s harder to find the money for self-employment tax than it is to have it deducted from your pay in the first place.
The only way to ensure you set aside enough money for taxes as a self-employed taxpayer is to maintain good records throughout the year. Once a quarter, calculate your net income and estimate the amount of tax you owe. Don’t forget the self-employment tax (Social Security and Medicare). If needed, you can always adjust your self-employed estimated tax payments — you aren’t locked into a certain amount. So, if you think you overpaid in Q1, you can adjust your Q2 payment to be lower.
If you need help making your estimated tax payments, consider opening another bank account just for taxes. Every time you deposit money into your business checking account, transfer the appropriate amount to the tax account. Then, consider that money untouchable for anything but your federal taxes.
4. Refigure your tax liability and withholding as needed.
Ensuring you have enough tax withheld or paid in estimated taxes is challenging. Whenever your situation changes — you get married or divorced, take on a freelance project, etc. — recalculate your income if necessary and plug your numbers into our W-4 calculator again. It’s a little more work than paying too much or hoping for the best, but it pays off by giving you much more peace of mind about your standing with the IRS.
5. Set up a payment plan.
If you can’t afford to pay off your tax bill immediately, TaxAct can help you set up an IRS payment plan that works for you when you file with us.
The bottom line
Understanding why you might owe taxes and how to address it can save you from unnecessary stress and surprises come tax season. By proactively adjusting your withholding, accounting for extra income, and planning for life changes, you can take control of your tax situation. This way, you can keep more of your money in your hands throughout the year rather than giving the IRS an interest-free loan. However, if you do end up owing taxes, there are always options to manage your payments effectively, and tweaks you can make to plan for a better tax result next year.
1W-4 Calculator (Refund Booster) may not work for everyone or in all circumstances and by itself doesn’t constitute legal or tax advice. Your personal tax situation may vary.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
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