The main reasons for owing taxes this year usually involve changes in income, withholding, or life events affecting tax liability. Common causes include:
- Not enough tax withheld from paychecks, especially if there were raises, bonuses, or changes in W-4 withholding allowances.
- Having income that is not automatically taxed, such as freelance or side gig income, which requires you to pay estimated quarterly taxes.
- Life changes like marriage, divorce, having or no longer claiming dependents, changing jobs, or selling investments.
- Underestimating or missing quarterly estimated tax payments if self-employed or a contractor.
- Taking distributions from retirement accounts that are taxable and may not have enough withheld.
- Changes in tax credits or deductions you previously claimed might reduce the tax benefits you receive.
In summary, you likely owe taxes because your tax withholding or estimated payments did not cover your total tax liability for the year due to income changes or life events that altered your tax situation. Updating your W-4 or making estimated payments can help avoid this next year.
