Life changes
You Owe Taxes This Year: What to Do Next
Seeing a balance due instead of a refund is a shock, but it is a fixable one. The most important step is filing on time, even if you cannot pay all of it yet.
Reviewed by LaToya Clark-Thompson, FounderLast updated
Why people end up owing
Owing at the end of the year almost always means not enough tax was paid during it. The usual reasons:
- Self-employment or gig income with no withholding, which also carries self-employment tax
- Two jobs, or two working spouses, where each employer withheld as if it were the only income
- A W-4 that was never updated after marriage, a raise or a child aging out of a credit
- A retirement account withdrawal, unemployment benefits or Social Security with little or nothing withheld
- Selling stock, crypto or property at a gain
- Losing a credit or deduction that offset tax in earlier years
Before paying, it is worth confirming the balance is right. A missing deduction, a missed Form 1098 for mortgage interest, or business expenses left off Schedule C can all inflate what you owe.
File on time, even if you cannot pay
The IRS charges two separate penalties: one for filing late and one for paying late. The failure-to-file penalty builds much faster than the failure-to-pay penalty. Filing by the deadline and paying what you can stops the larger one entirely. Interest still runs on any unpaid balance until it is paid.
An extension gives you more time to file, not more time to pay. If you expect to owe, a payment made with the extension request reduces the interest and penalty that build up.
Your options for paying
- Pay in full through IRS Direct Pay, your IRS Online Account, a debit or credit card processor, or a check with Form 1040-V
- Ask for a short-term extension to pay if you can clear it within a short window
- Set up a payment plan online. For many individuals this is now the Simple Payment Plan, which replaced the old streamlined installment agreement
- If you truly cannot pay, other options exist, including an Offer in Compromise, which individuals can now submit online
We explain each option in IRS payment plan options and IRS payment plans. South Carolina has its own payment arrangements through SCDOR’s MyDORWAY portal if you owe the state as well.
Avoiding a balance next year
If your income is mostly wages, adjust your W-4. The W-4 withholding calculator shows how extra withholding per paycheck adds up. If you have self-employment income, make quarterly estimated payments with Form 1040-ES. The quarterly tax calculator and our guide to quarterly estimated taxes walk through the amounts and timing.
Paying too little during the year can also trigger an underpayment penalty, figured on Form 2210. Paying in at least as much as a "safe harbor" based on last year’s tax usually avoids it. Planning during the year, not at filing time, is what tax planning is for.
Getting help with the return
Bring last year’s return, this year’s W-2s and 1099s, any records of estimated payments, and a list of anything that changed in your life. We prepare and file the return, check that the balance is right, and show you where it came from so next year is not a surprise. If the IRS has already sent a balance-due letter, see IRS letter help. Start with tax preparation.
Frequently asked questions
What happens if I owe taxes and can’t pay?
File your return on time anyway, and pay what you can. Filing stops the failure-to-file penalty, which is the larger of the two. Then set up a payment plan through your IRS Online Account. Interest and a smaller failure-to-pay penalty continue on the unpaid balance, but the IRS does not take collection action while you keep to an agreed plan. See IRS payment plans.
Why do I owe taxes when I had taxes taken out of every paycheck?
Because the amount withheld was less than the tax you owed for the full year. That happens with two jobs, a spouse who also works, a raise, extra income from a side business or investments, or a W-4 that was not updated after a life change. Running the W-4 withholding calculator with your current pay stubs shows the gap.
Does filing an extension give me more time to pay?
No. An extension gives you more time to file the return, but any tax owed is still due by the original deadline. Interest and the failure-to-pay penalty run from that deadline. If you need the extra time, estimate what you owe and pay as much as you can when you request the extension.
Can I set up an IRS payment plan myself?
Yes. Most individuals can apply online through their IRS Online Account, and many qualify for the Simple Payment Plan without sending financial statements. Larger balances or more complex situations may need more paperwork. If the IRS has already started collection, the independent licensed CPA we work with can handle representation, with our office coordinating. See payment plan options.
Will I get an underpayment penalty for owing?
Possibly, if you paid too little during the year through withholding or estimated payments. Form 2210 figures it. You are usually protected if what you paid in during the year met a safe harbor based on last year’s total tax, or if the balance due is small. The return calculates this, and it is one more reason to plan withholding early.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related pages
Your refund is smaller than last year
Withholding, aged-out credits, side income and status changes: the usual reasons a refund drops, and how to tell which one is yours.
Learn moreYou started a side hustle
Side income next to a W-2: Schedule C, self-employment tax, expenses and estimated payments.
Learn moreYou went from W-2 to 1099
Employee to contractor: no withholding, self-employment tax, estimates and new deductions.
Learn moreYou sold investments or crypto
Forms 1099-B and 1099-DA, short vs long term, missing basis, losses and crypto.
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