What You Need to Know About Withholding and Taxes

If you’ve recently received a tax bill from the IRS, you may be wondering how this happened. After all, you made less than $18,000 last year, which is below the poverty level. So why do you owe money?

Taxes vs. Withholding

It’s important to understand the difference between taxes and withholding. Taxes are the amount of money you owe the government based on your income. Withholding is the amount of money your employer takes out of your paycheck each pay period and sends to the government.

The amount of money you have withheld from your paycheck is based on your Form W-4, which you fill out when you start a new job. This form tells your employer how many allowances you claim. The more allowances you claim, the less money will be withheld from your paycheck.

Why You May Owe Taxes

Even if you only made a small amount of money last year, you may still owe taxes if you didn’t have enough money withheld from your paycheck. This can happen for a few reasons, such as:

You had multiple jobs. When you have multiple jobs, each employer will withhold taxes as if you only had that one job. This can result in too little money being withheld overall.
You didn’t claim enough allowances. If you claim too few allowances on your W-4, too much money will be withheld from your paycheck. This can reduce your take-home pay and result in a tax bill at the end of the year.
You had other income. If you had other income in addition to your wages, such as unemployment benefits or investment income, you may owe taxes on that income.

What to Do If You Owe Taxes

If you owe taxes, you have a few options:

Pay the balance due. You can pay the balance due online, by mail, or by phone.
Request an installment plan. If you can’t pay the balance due in full, you can request an installment plan. This will allow you to pay your taxes over time.
File an amended return. If you made a mistake on your tax return, you can file an amended return. This may allow you to reduce your tax bill.

How to Avoid Owing Taxes Next Year

To avoid owing taxes next year, you can take the following steps:

Use the IRS withholding estimator. The IRS withholding estimator can help you determine how much money to have withheld from your paycheck.
Claim the correct number of allowances on your W-4. The number of allowances you claim should be based on your personal circumstances.
Make estimated tax payments. If you expect to owe taxes, you can make estimated tax payments throughout the year. This will help to reduce your tax bill at the end of the year.