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 this tax season? We answer your questions about owing taxes and more below.
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, TaxAct® can help you set up an IRS payment plan during the tax filing process.
The fear of owing taxes
Filing federal and state taxes can be daunting for many filers. It’s why so many taxpayers tend to over-withhold from their pay, fearing they might owe the IRS even with their withholdings. There seems to be something about owing taxes that causes dread among taxpayers, but overpaying thousands of dollars in taxes “just to be sure you have enough” isn’t always 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. So, why do so many people choose to overpay their taxes? First, let’s look at some reasons why you might owe the IRS this year.
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 when they file.
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 more of your paycheck than necessary. (We’ll talk more about how to do this in the next section.)
2. Extra income not subject to withholding
Additional sources of 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 taxable income than usual. Even unemployment benefits can increase your tax bill, so factor in these situations when thinking about how much you might owe in taxes.
3. Self-employment tax
If you are a small business owner, you may also owe self-employment tax. 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 throughout the year instead of having taxes withheld from your paycheck. 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, and your eligibility for certain tax credits goes away. Or maybe you got a new job and had a drastic change in income, potentially bumping you into a lower or higher tax bracket. It’s a good idea to revisit your withholdings whenever a big life change happens to avoid unpleasant tax surprises.
6. Changes in the tax code
Changes in the tax code can also make a difference in your tax bill. For example, the Working Families Tax Cuts Act (a.k.a. One Big Beautiful Bill), passed in 2025, introduced 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 avoid owing the IRS when you file your tax return.
1. Refigure your paycheck withholding.
If you have too little withheld from your paycheck, you can submit a new Form W-4. Thankfully, TaxAct has a handy W-4 calculator1 to help you avoid underpaying your taxes. Just answer a few questions about your tax situation, and we’ll help you fill out and print a new W-4. Then you can hand over the new Form W-4 to your employer’s payroll department to make the change (please do not send it to the IRS).
2. Tax withholding from other income.
For non-wage income, you can choose to voluntarily have income tax withheld. For example, if you can swing it, you could withhold 10% of your unemployment benefits for taxes. That may hurt a little now, but for some people, it’s much less painful than a big tax bill next spring. It all depends on your personal preference.
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%, 12%, or 22% 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, you can 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 filing as single with no adjustments to income. For payments starting before 2026, your existing withholding election or default rate stays in place unless you submit a new Form W-4P.
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 can be harder to pay self-employment tax than 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 a separate bank account just for taxes. Every time you deposit money into your business checking account, transfer the appropriate amount to the tax account. Then treat that money as 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.
FAQs
The bottom line
Owing taxes isn’t fun, but it’s also not random. In most cases, it comes down to not withholding enough, whether that’s due to extra income, life changes, or tax law updates. The good news is you can fix most of these issues with a few proactive adjustments. By reviewing your paycheck withholding, planning for self-employment or investment income, and recalculating after major life changes, you can avoid surprise tax bills and keep more control over your money during the year.
If you do end up owing the IRS at the end of the year, don’t stress. When you e-file with TaxAct, our tax software will help you understand why you owe and walk you through your options (including setting up an IRS payment plan if you need more time to pay).
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.
The OBBB is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used here, but they refer to the same set of tax changes.
