(NEXSTAR) – It’s that time of year again — you’ve received your tax forms — which means it’s time to start filing your taxes. Americans are now turning to their tax software or specialist (if they haven’t already), hoping to hear they’re getting a refund.
Unfortunately for some, they’ll be writing the IRS a check rather than the other way around.
Not sure why you owe taxes this year? There are a few common reasons, mostly stemming from changes in your life, that can lead to you owing.
One of the most notable is a change in your employment. When you start a new job, you have to fill out a Form W4. Basically, this form determines the amount of taxes taken out on each of your paychecks. By putting a 0 on your W4, the most amount of taxes will be taken, while putting a 1 means less will be taken. Having the most amount of taxes taken out will lead to a refund, according to the IRS.
Those who are self-employed may also suffer a “tax shock event” if they didn’t pay estimated taxes, according to Mark Steber, chief tax information officer for Jackson Hewitt Tax Services. Estimated tax is used to pay Social Security and Medicare taxes, as well as income tax, because you don’t have an employer already withholding these taxes for you, the IRS explains.
If you didn’t pay estimated taxes this year, you’ll likely have to pay while filing this year, says Lisa Greene-Lewis, a CPA and tax expert with TurboTax.
Other bonuses, like hiring or retention bonuses, can lead to you owing taxes. While some bonuses have minimal withholdings, it may not be enough to offset the true tax rate, Steber notes. Bonuses count as supplemental income, according to TurboTax, meaning they are subject to federal withholding at a 22% flat rate.
Child Tax Credit
The Child Tax Credit payments may also be to blame. The payments received throughout 2021 were advanced payments on your tax credit, Greene-Lewis says. If you were overpaid, the IRS says it’s likely you may owe money back.
Payments in 2021 were based on previous years’ returns, so some situations — like an increase in income during 2021 or a child aging out of the benefit — might lower the amount owed to the taxpayer.
Do you share custody of a child or children? That could have an impact, too. Steber explains that if it isn’t your year to claim a dependent, but you received advanced child tax credit payments, you’ll have to pay those monies back.
And if you tried your hand at cryptocurrency last year — and got lucky — you could find yourself owing the IRS. Big cryptocurrency gains should be reported on your taxes. Without withholdings or estimated payments, you’ll owe, says Steber.
This is limited to those who sold a cryptocurrency, according to the IRS. If you purchased some this year, but did nothing else with it, you don’t need to report it.
Once you sell it, and realize a gain or loss, you need to report your crypto activity, CNET explains. You’ll owe taxes on any capital gains.
Owe taxes but can’t pay? You have options
Those that end up owing the IRS money are encouraged to pay on time. If you can’t pay the full amount when you file, that’s OK. The IRS offers different payment plans.
First, you can agree to pay the full amount within the next ten days. If you need more time, you can select a short-term payment plan to pay your federal taxes within 11 to 120 days.
Need even more time? The IRS offers a third option: an installment agreement. Here, you can pay the balance due in monthly payments.
Visit the IRS for more information about these payment plans.