It might be depressing to discover that you owe taxes, especially if you were expecting a huge refund. In this guide, we’ll answer the question “why do I owe taxes this year 2023?” not only that, we will also be knowing why do I owe taxes when I make so little and for health insurance?
Why Do I Owe Taxes
The answer to the question “why do I owe taxes?” could be tied to the economic changes caused by the coronavirus outbreak.
Receiving unemployment benefits, taking on a second job, or working for yourself are all reasons why your refund amount may vary from year to year.
Here are some examples of how job and policy changes may have influenced your tax situation.
#1. Unemployment Benefits
As a result of the coronavirus, more Americans than ever before are filing for unemployment benefits. If you have never received unemployment benefits, you may be unaware that your earnings are taxable at the federal level (and most states). Because of the American Rescue Plan Act of 2021, those earning less than $150,000 will be able to deduct $10,200 from their income in the tax year 2023. When you file your tax return, you should include your unemployment income. Enter your unemployment income, along with any other amounts withheld, into our Tax Calculator to see how it affects your 2023 tax return.
#2. 1099 Hustle
If you operate as a freelancer or on a contract basis but haven’t been paying your quarterly taxes on time, this could explain why you owe the IRS. You are normally responsible for paying your own estimated taxes on a quarterly basis as a gig worker. Because your employer isn’t withholding taxes from your paycheck in these situations, you’re on your own to make tax payments.
#3. Changes in Occupation
If you or your spouse changed jobs in the preceding year, you would have needed to complete a new Form W-4. Because this form might be difficult to complete, it’s possible that minor changes in how you completed it altered how much you withheld each pay period.
#4. Student Loan Repayment Status
Coronavirus may have other consequences for your refund. Holders of federal student loans have been granted a payment reprieve for most of 2023. Making fewer payments has the disadvantage of reducing your student loan interest deduction, which may result in you owing taxes rather than obtaining a refund.
Why Do I Owe Taxes This Year?
“Why do I have to pay taxes this year?” you may be wondering. It could be a single big change or a succession of significant changes in our answer, such as:
#1. Changes in Filing Status
However, significant life events such as marriage, divorce, retirement, or adding a dependent (having a kid, adopting) can have an influence on your tax situation, including your filing status and other aspects of how you are taxed. Changing your status from Head of Household to Single, for example, will affect your tax rate as well as the credits and deductions that are available to you. If you’re married, be sure you understand the distinction between Married Filing Jointly and Married Filing Separately.
#2. Children of a Certain Age
To be eligible for the Kid Tax Credit, your child must have been under the age of 18 at the end of the tax year. If they no longer qualify, you will no longer be entitled to the Credit. This considerable reduction can have a huge impact on your bottom line and may answer the question, “Why do I owe taxes?”
#3. Tax Credits and Deductions
They are available if you meet certain criteria. Other life events may have an impact on your eligibility for various tax breaks and deductions. Income changes, for example, may affect your eligibility for the Earned Income Credit. If you are a college student, you may have been eligible for the American Opportunity Credit in the past but are no longer eligible due to a change in enrollment status.
#4. Part-Time Work
The more money you earn, the more tax you owe, especially if it is not taxable income. This could include selling stocks on the stock exchange or doing freelancing work. You may be required to pay self-employment taxes as well. Because no one deducts the IRS’s withholding taxes from your pay each month, your taxes owed will only be calculated during tax season unless you pay your taxes quarterly.
Why Do I Owe Taxes 2023
It’s vital to understand out why you owe taxes in this year 2023, so you can avoid doing it again. Here are some of the reasons you owe taxes in 2023.
#1. Changes to the Tax Code.
Understanding why you owe 2023 taxes, you need to know that various changes to the tax code have occurred in recent years, which may have a significant impact on how much you pay in taxes. Even if you regularly anticipate receiving a refund, the new tax laws may prevent you from receiving one. When the IRS updated its tax brackets, it may have affected you and placed you in a new tax bracket.
#2. Earnings Over Average
Earning greater money necessitates the payment of additional taxes. You could have ended up with a higher tax rate if you received a boost in your salary or worked a lot of overtime while being paid hourly.
#3. Changes in Deductions
If you did not qualify for the anticipated deductions and credits, you may owe taxes this year. The earned income tax credit, for example, has annual limits. You may no longer be eligible if you earned more in the previous tax year. Similarly, many parents take advantage of the child tax credit, which can significantly reduce the amount of taxes owing. There are income limits for this credit, and your child may have reached the age of ineligibility.
#4. Unable to File
Another issue that could result in unpaid taxes is the failure to file taxes on time. The annual deadline for federal taxes is usually April 15th (May 17 in 2023). Tax dates in each state may differ. If you file late and fail to seek an extension on time, you may be charged late penalties and interest, which may raise your tax bill. If you’re wondering why you owe taxes this year, it’s possible it’s due to a late tax return.
Why Do I Owe Taxes For Health Insurance?
Depending on where you get it, what kind you receive, and whether you get it at all, purchasing health insurance can be useful or detrimental to your taxes. Understanding how health insurance affects taxes will help you plan for tax season more effectively. And moreover, the location of your health insurance provider may have a big impact on your tax return. Hence, below is the reasons why you owe taxes for health insurance.
#1. Employer-Sponsored Health Insurance
This is a type of insurance offered by a company. If your company provides health insurance as a perk and you pay a portion of the plan’s premium, your portion of the bill is paid using pre-tax funds. This means the money is exempt from federal and state income tax withholdings, as well as Social Security and Medicare taxes.
Understanding why you owe taxes for health insurance, you need to know that the amount of federal and state income taxes deducted can vary depending on your income and how many allowances you claim on your W-4 form.
#2. The Exchange For Health Insurance
Depending on your income, you may be eligible for a premium tax credit to help offset the cost of your monthly premiums. If your household income for the year is at least 100% but not more than 400% of the federal poverty level for your family size, you may be eligible for the credit.
How do I avoid owing taxes?
Here is how you can avoid owing taxes.
- Contribute to a Retirement Account.
- Open a Health Savings Account.
- Use Your Side Hustle to Claim Business Deductions.
- Claim a Home Office Deduction.
- Write Off Business Travel Expenses, Even While on Vacation.
- Deduct Half of Your Self-Employment Taxes.
- Get a Credit for Higher Education
Why do I owe taxes this year?
To answer this question of “why do I owe taxes this year”? Here are some of the reasons you do owe taxes this year.
#1. Changes in Filing Status
#2. Children of a Certain Age
#3. Tax Credits and Deductions
#4. Part-Time Work
Is it bad to owe taxes?
It’s terrifying to owe the IRS any amount of money, no matter how tiny. Ignoring the debt will not make it disappear any faster. If you’ve submitted your income tax return for the year and are facing a large tax bill, it’s better to deal with it as soon as possible.
