According to the latest Internal Revenue Service Data Book, there were approximately 14 million delinquent tax accounts at the end of 2016. The total associated tax balances for those accounts, including the assessed balance, penalties and interest equaled a staggering $138.2 billion! So why do so many people fall behind on their taxes? We’ve probably heard every reason under the sun from “I got scared” to “I just forgot to file.” However, most reasons will typically fall into 4 broad categories.
When you work a job, you’ll typically tell the employer to withhold taxes from your paycheck. However, if enough taxes aren’t withheld from your paycheck throughout the year, you, the employee, will likely owe the IRS when you file your tax return. The IRS refers to this phenomenon as “underwithholding.” It’s usually triggered when an employee claims excessive exemptions on his or her IRS Form W-4 that results in not having enough income tax withheld throughout the year. We sometimes also see this when an employee tries to get too much money in their check by claiming “exempt” on their W4 and either 1) becoming too accustomed to those nice take home checks or 2) they forget to switch it back before the year ends.
The main takeaway with underwitholding is to know that you can file a new W-4 at any time. What’s even better is that if you find that you’ve given too much to the government, you’ll get the money back when you file your income tax return!
Not Making Estimated Tax Payments