1. Your W-4 was set up for a different situation
An out-of-date Form W-4 is the most common reason taxes are owed. Dual-income households are especially vulnerable: each employer withholds as if it’s your only job, so combined withholding ends up too low. You may have underwithheld if you didn’t update your W-4 after:
- Getting married
- Changing jobs
- Starting a side gig
Run the IRS Tax Withholding Estimator to help you determine how much to withhold, then consider filing a new W-4 with your employer.
2. Income without taxes withheld
Completing a W-4 doesn’t automatically withhold on the following income:
- Freelance work
- Side gig earnings
- Investment gains
- Rental income
- Unemployment benefits
This income stacks on top of your wages and gets taxed at your marginal rate (your highest applicable tax rate).
3. You had an impactful lifestyle change
File a new W-4 form whenever any of these occur:
- Marriage, divorce, or separation resulting in a change in filing status
- A new job or significant raise
- A new child or a dependent aging out
- Starting or stopping a second income source
4. You’re ineligible for a credit or deduction you used to claim
A child aging out, an income bump past a phaseout threshold, or paying off your mortgage (fewer itemized deductions) can each quietly add to what you owe.
Tax credits decrease the tax you owe, dollar for dollar, and losing one can significantly increase your tax liability. For example, if your child ages out of the Child Tax Credit (CTC), you’ll lose that $2,200 tax benefit. Similarly, since the Earned Income Tax Credit (EITC) decreases as your income increases, a salary bump might erase the credit.
How to reduce the likelihood you’ll owe taxes next year
- Adjust withholding now: File a new W-4 with your employer using the IRS Tax Withholding Estimator as your guide.
- Make quarterly estimated payments for self-employment or investment income: Use IRS Form 1040-ES, due April, June, September, and January. Consider setting aside 25–30% of net self-employment income.
- Use the safe harbor: Pay at least 90% of this year’s tax by April 15—or 100% of last year’s tax (110% if your prior-year adjusted gross income (AGI) exceeded $150,000)—to avoid underpayment penalties.
