Why do People with W-2 Owe Back Taxes?
Posted by Dean Alexander on Wed, Mar 16, 2011
People who usually get in trouble with the IRS are self employed people. They have to come up with a big chunk of money at the end of the year if they don’t make their
estimated tax payments.
But frequently we see people who are full time employees (we call them w-2 employees) owe taxes at the end of the year. The conventional wisdom in our business is that they should come out even or even get some refund. Why then do some end up owing IRS and a tax debt that may haunt them for years?
The first obvious and most frequent reason is claiming too many exemptions. People claim as many as ten exemptions or even more when in fact they are single. This is a bad mistake especially if you going to owe back taxes at the end of the year. Solution? Just follow the cause of the problem. Claim the right number of exemptions.
Some with good intentions claim the right number of exemptions and still owe the tax man. In this case claim fewer exemptions. If you claim two, claim one and if you claim one, then claim zero.
Related to the income tax deduction is the case when an employee has two jobs. They may withhold the right amount of taxes for you in the main job. Typically however in the second job, they almost always withhold less.
If you make ten thousand dollars from the second job, they will withhold from you next to nothing treating you like a poor man. But if they know that you are making ninety thousand dollars on the main job they would have taken more. Solution let them know how much you are making in your primary job or tell them so or ask that they deduct say twenty percent of your check for income tax.
Finally one source of headache and tax problems for tax payers is the claim of earned income credit. People are too anxious to claim the credit. It is lucrative and some do anything to get two, three or even five thousand by claiming children that they should not claim.
If you are divorced, don’t claim the child that your ex-spouse claims. You can be audited. You cough it all back with tax penalty and interest as well as hiring a CPA to represent you with fees that go with it. Stay out of trouble.