Owing federal income tax at the end of the year. Here are some scenarios:
- Under-withholding:
- Each job assumes you have only one source of income.
- Your tax rate increases as your income rises.
- Limited Standard Deduction:
- You can only claim one standard deduction on your tax return, regardless of the number of jobs you hold.
- Incorrect W-4 Form:
- Outdated or inaccurate information on your W-4 forms, especially regarding allowances or multiple jobs, can lead to under-withholding.
- Other income sources without withholding:
- If you have other sources of income that don't have taxes automatically withheld, like side work, investment income or self-employment, you'll need to account for those when determining your tax liability.
How to avoid owing taxes or a large tax bill:
- Complete a new W-4 Form.
- Here is a great link to calculate your tax liability and prepare an updated W-4: W-4 Tax Calculator
- Account for all income sources: When completing your W-4 form, ensure you account for all sources of income, including secondary jobs and other income sources that do not have automatic withholdings.
- Make estimated tax payments: You can make quarterly estimated tax payments to the IRS. Here is the link for estimated tax payments: IRS estimated tax payments
Have an amazing day. Evelyn M (CPA 20+ years)
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