Why Do I Owe Taxes This Year?

Why Do I Owe So Much in Taxes?

A high tax bill is generally the result of insufficient tax paid on income. Here are some of the most common reasons why you may owe taxes.

Not Enough Taxes Were Withheld From Your Paycheck

If your employer isn't taking out enough taxes from your paycheck each week, you could end up with a tax debt at the end of the year. Keep your Form W-4 withholding information updated with your employer if your financial situation changes so the right amount is withheld. For example, if you get a raise that pushes you into a higher tax bracket, you may need to increase your withholding.

Learn more: What Are the New Tax Brackets?

You Have Multiple Sources of Income

You could owe taxes if your tax withholdings don't account for a second job or your spouse's employment. If each employer withholds taxes as if that paycheck is your only income, the total withholdings may not be enough to cover the tax owed on your combined income.

You Didn't Pay Enough in Estimated Taxes

If you're self-employed or run your own business, you may need to pay estimated quarterly taxes. If those payments are too low, you may owe the IRS when you file your taxes. If you're unsure how much to pay, a common rule of thumb is to set aside about 25% to 30% of your net income for taxes throughout the year. An experienced tax accountant can also help you determine the right payment schedule for your situation.

You Earned Income That Wasn't Withheld

You may receive income that isn't subject to withholding, such as unemployment benefits, investment gains, rental income or earnings from a side gig. In that case, you'll have to pay those taxes when you file. Otherwise, you could end up owing the IRS.

Learn more: Ways to Make Money From Your Job (Without Asking for a Raise)

There Have Been Changes to Your Tax Credits or Deductions

Every year, tax code changes go into effect, which could affect your tax bill. If you owe on your taxes, it's possible recent tax changes could be to blame. The One Big Beautiful Bill Act, for example, includes several new tax changes for 2025, including new tax credits and deductions. If you lose benefits you usually claim, your tax obligation could be higher. Before you file your taxes, research the changes or ask your tax accountant to go over them with you so you understand how the new rules affect how much you owe.

Life Changes Triggered a Higher Tax Bill

Major life changes, such as marriage, divorce, a pay raise, dependent changes or retirement could increase the amount you owe in taxes. These types of events can change your income, filing status or eligibility for credits and deductions. If you don't also adjust your tax withholding, you could end up owing your taxes.

Learn more:How to Pay Less Taxes

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What to Do if You Owe Taxes

If you owe taxes, all is not lost. Here's what you can do if you can't pay your taxes.

1. File Your Return on Time (Even if You Can't Pay)

The important thing is to still file your taxes, even if you're unable to pay your tax bill right away. The IRS imposes a penalty for failing to file your taxes that may be greater than the non-payment penalty. Filing is also required if you want to get approved for a payment plan.

2. Pay What You Can

You should still pay what you can because doing so lowers the remaining balance and, consequently, the interest you'll pay. You'll also incur a failure-to-pay penalty of 0.5% of the tax owed every month until the tax debt is paid off. It's best to pay what you can and make a plan to pay it off as soon as you can.

3. Consider an IRS Payment Plan

The IRS offers payment plans for qualified taxpayers that can help you pay back what you owe over time, including:

• Short-term payment plan: If you need up to 180 days to pay off your tax bill, you can set up a short-term payment plan. There's no setup fee for this option. You can have the payments automatically withdrawn from your bank account, pay online at the IRS site or with a check, money order, debit or credit card.
• Long-term payment plan: If you need more than 180 days, you can apply for a long-term payment plan and pay in monthly installments. There is a setup fee for this option, which is lower if you apply online and choose automatic payments from your bank account.

Tip: You can usually apply online, by phone (800-829-1040) or by mailing to the address listed on your IRS notice or Form 9465.

How to Avoid Owing Taxes Next Year

According to IRS data through the 2024 tax season, nearly two-thirds of taxpayers received a refund on their income taxes. If you want to avoid falling into the smaller group of taxpayers owing taxes, review your income taxes to determine why you owe and take steps to correct the problem.

• Adjust your withholding. If your employer isn't taking enough out of your paycheck, make the necessary adjustments so you don't have the same issue next tax filing season. You'll likely need to calculate your tax withholding if you've recently experienced a major life change, such as marriage, a new baby or a significant change in income. The IRS withholding tax estimator can help you determine the correct amount.
• Make quarterly payments. If you're not a traditional wage earner and have income from self-employment, a small business or investments, you may need to make quarterly estimated tax payments to the IRS. As mentioned, it's a good idea to pay at least 25% to 30% of your net income toward your estimated tax payments, or consult a tax accountant to dial in the amount.
• Take advantage of credits and deductions. One direct way to lower your tax obligation and reduce the chances of owing next year is to claim any tax credits and deductions you're eligible for. If you have children or other eligible dependents, see whether you qualify for the child tax credit or other dependent-related credits. If you itemize, check with the IRS, your tax accountant or your tax software to make sure you're taking deductions you qualify for.
• Contribute to tax-advantaged accounts. Putting money into tax-advantaged accounts may lower your taxable income and help you avoid owing on your taxes. Contributions to a traditional IRA or a 401(k) are made with pretax dollars, which means less of your annual income is subject to taxes. Health savings accounts and 529 college savings plans may also help lower your tax bill.

Learn more: Best Ways to Lower Your Taxes

Frequently Asked Questions

The Bottom Line

Reviewing your tax withholdings, deductions, credits and the other factors mentioned above can help you identify why you owe so much in taxes. Working on your taxes takes time and may seem tedious, but the extra effort you put in now could help you avoid owing on your taxes in the years to come.

If you're not keen on doing it yourself, work with a tax advisor or tax preparation software for expert guidance. Lastly, don't put off filing your taxes. Starting early can give you extra time to comb through your finances and spot potential ways to save on your taxes.