Every year, millions of Americans write a check to the IRS in April, then spend the next twelve months with a vague fear of it happening again.
Marcus is one of them. He’s a 31-year old account manager who thought his taxes were on autopilot. He’s fictional, but his situation isn’t.
We’ll follow his story to show exactly how an unexpected tax bill sneaks up on you, and what you can do about it before next April.
Marcus | 31 years old | Account Manager | Weekend DJ
Works full-time at an insurance company
Started DJing weddings and private events on weekends
Earns ~$11,000/year in gig income (none of it withheld)
Filed this April and owed for the first time
Why you owe taxes, and what it actually means
The U.S. tax system is pay-as-you-go: You’re expected to pay your taxes throughout the year as you earn income. If you’re a W-2 employee, your employer withholds federal income tax from each paycheck and sends these taxes directly to the IRS. When it’s time to file, the IRS compares what was withheld to what you actually owe.
A balance due simply means the amount withheld during the year came up short.
How Marcus ended up with a tax bill
Got a second job > Didn’t update his W-4 > Owed underpaid tax in April
For Marcus, the reason he owed taxes was simple: He got a second job and never updated his W-4 to account for the extra income.
Marcus hadn’t thought about the fact that his W-4 still reflected his income and tax bracket from an earlier stage of his career, before he started his second job. It meant his tax liability had crept a little higher, but he hadn’t adjusted his withholding to reflect that.
Each year, federal withholding should be close to your ultimate tax liability so you don’t owe money at tax time.
When you complete a Form W-4, you allow your employer to withhold federal income tax from your paycheck. Generally, if too little tax is withheld, you will owe tax when you file your taxes. On the other hand, if too much is withheld, you’ll probably get a refund.
Start by updating your W-4 so your employer withholds the right amount going forward. If you have freelance income or investment gains, set up quarterly estimated payments to cover what withholding can’t.
Fix your W-4 before next April
Submitting an updated W-4 means the correction takes effect with your very next paycheck. If you do it in May, you’ll be withholding the right amount for nearly seven months before the end of the tax year. It can be the difference between a comfortable April or a stressful one.
(By the way, your employer doesn’t need to know why you are updating your W-4, they just need to know how much you want to withhold.)
TurboTax has you covered and can help you adjust your withholding allowance on your W-4 with our W-4 Withholding Calculator, which is updated annually to reflect any tax law changes.
This April, Marcus owed. Next April, he’ll be ready.
Marcus didn’t get ahead of it this year. But he submitted his W-4 update right after filing, and made a note to revisit it in January and any time something in his financial life changes. Next April, he’ll be ready.
Make quarterly estimated payments for income your W-4 can’t cover
If you’re self-employed or have other income that taxes aren’t withheld from, like rental income, investment dividends, interest, or a one-time taxable event, you’ll need to handle that separately by making quarterly estimated payments.
You estimate what you’ll owe on that income for the year, split it into four payments, and send them to the IRS throughout the year, in April, June, September, and January of the following year.
If you owe more than $1,000, the IRS could charge a penalty for underpayment of estimated tax. Making sure your tax withholding is correct and/or making estimated quarterly payments can help avoid a penalty.
Set up a sinking fund to save for next year’s tax bill now
If you owed money this year, it’s worth considering setting up a sinking fund to make sure the money is there next year if you need it, as well as removing the risk of accidentally spending it on everyday expenses.
What’s a sinking fund?
A sinking fund is a savings technique in which you set aside a fixed amount each month for a specific future expense. By putting it in a dedicated high-yield savings account, labeled something obvious like “2026 taxes,” it could even earn you interest.
What’s Marcus’ sinking fund?
He opened a high-yield savings account in May and set up an automatic transfer. By next filing season, the money will already be there.
Amount owed this year: $1,550
Months remaining until next filing: 11
Monthly transfer: ~$141
A few more considerations
Full-time employment means withholding is happening, but it doesn’t mean it’s accurate. If your W-4 is out of date, your employer may not be withholding enough without you realizing it.
A balance due tax return doesn’t necessarily mean you made a mistake. It could be that your withholding wasn’t accurate. Even if it’s an error or miscalculation on your tax return, mistakes happen and are often easily rectified.
You can still get a refund next year even if you owed this year. Your outcome is calculated yearly and is independent of any other years. Adjust your withholding now and your 2026 tax return may look very different.
How to avoid owing taxes next year
If you just filed with a balance due, act now, you still have most of the year to course-correct before your 2026 tax return is due.
And no matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund — guaranteed.
