Why do I owe taxes this year? – It could be due to pandemic impacts
If you received a refund last class, you generally could expect one this year—if your personal tax site was the same. But, for then many people this last year, their position was not the same. That said, the answer to “ why do I owe taxes this year ? ” might have to do with economic shifts due to the coronavirus pandemic .
Receiving unemployment income, taking on an extra speculate or self-employment are all plausible causes for your refund amount changing from class to year .
here are a few ways speculate and policy changes might have impacted your taxes.
Reading: Why Do I Owe Taxes? | H&R Block
- Claiming unemployment – Americans are claiming unemployment benefits in higher numbers than ever before due to coronavirus. If you haven’t collected unemployment benefits before, you might not realize that unemployment income is taxable at the federal level (and most states). Due to the American Rescue Plan Act of 2021, unemployment compensation for taxpayers below $150,000 will be able to exclude $10,200 of their income in tax year 2020. When you file, you should include unemployment income on your tax return. To get a sense of how your unemployment income will affect your 2020 tax return, enter it and any other amounts withheld into our Tax Calculator.
- New 1099 hustle – If you have a freelance or gig job, but haven’t been paying estimated quarterly taxes, that could shed light on the question “why do I owe the IRS?” As a gig worker, you generally need to pay quarterly estimated taxes on your own. Since there’s no paycheck withholding by an employer in these situations, the job of keeping up with tax payments falls on your shoulders. Check out our Tax guide for gig workers for help.
- Job changes – If you or your spouse changed jobs last year, you would have completed a new Form W-4. Because completing this form can be tricky, it’s possible that slight changes in how you filled it out affected what you withheld each pay period.
- Student loan repayment status – There may be other impacts on your refund related to coronavirus. For much of 2020, federal student loan holders got a break on making payments. The downside of not making as many payments means you have a reduced student loan interest deduction, which could cause you to owe taxes instead of getting a refund.
If the scenarios above don ’ thymine reflect your situation, there are early potential reasons why you owe the IRS. Read on to learn about other factors that may affect why you may owe taxes .
Why else would I owe taxes this year? Here’s what to look for
If you ’ re wonder, “ why else would I owe taxes this year ? ” The first gear question you should ask yourself is “ what other changes were there in my tax situation ? ”
Read more: When Can You File Taxes? | H&R Block
It could be one adult change or several changes that made an impact :
- Filing changes – But big life changes, such as marriage, divorce, retirement or adding a dependent (having a baby, adopting) can affect the your tax situation such as the filing status for which you are eligible and other aspects of how you are taxed. For example, changing from Head of Household to Single will affect your tax bracket and the credits and deductions you can take. If you’re married, be sure you understand the difference between the status of Married Filing Jointly vs. Married Filing Separately.
- Older children – To claim the Child Tax Credit, your child must have been under age 18 at the end of the year. If they no longer qualify, you no longer can get the Credit. This significant drop can mean a great deal to your bottom line and may answer the question of “why do I owe taxes?”
- Credit and deduction eligibility – Other changes in your life can impact your eligibility for various types of credits and deductions. For example, changes in your income might affect whether you qualify for the Earned Income Credit. Or, if you’re a college student, maybe you were previously able to claim the American Opportunity Credit, but due to an enrollment status change are no longer eligible.
Why do I owe so much in taxes? What can I do about it?
While some taxpayers prefer to have more in their paycheck vs. receiving a refund, many of us look forward to getting money back at tax clock.
- If you owe taxes this year and hoped for a refund instead, you can update your withholding. It’s likely that you’ll owe again next year unless you complete a new Form W-4 and increase your withholding. The sooner in the year you submit this change to your employer, the sooner your new withholding will take effect on your paycheck. We can help you understand how to fill out a new Form W-4. Plus, our W-4 calculator is a great resource.
- If you owe the IRS money and can’t pay, there are options. We can help you understand how you can pay back taxes if your tax bill is too much to pay right now. H&R Block specializes in helping taxpayers in this situation and our tax pros can explain the steps to take.
How will I know why I owe the IRS?
You ’ ve now read the answer to “ why do I owe money on my tax return ? ” and more specifically, “ why do I owe taxes for 2020 returns ? ”
As part of our commitment to keeping you informed, H & R Block is here to help you understand what could affect your refund or if you ’ ll owe tax .
- If you use our online tax filing options, you’ll be able to see your refund results in real time. Plus, we explain why your results move up or down.
- If you visit one of our tax offices, your tax pro can walk you through each credit and deduction to explain how it affects your refund.