In December 2017, tax Cuts and job cuts were enacted in the United States by the department of revenue. This resulted in a change in the direction employers take to determine the amount of income tax that is to be deducted from your salary. Many Americans did not know that the W-4 forms required an adjustment as well, and this led to many of the taxpayers not paying the right amount of taxes; instead of getting a refund, they wound up needing to owe the IRS.
Of course, having a bill instead of a refund will negatively impact your credit score, and you will get higher penalties and interest rates. Taking a second look at your withholdings is necessary to determine if there are any changes to take.
In order to know if you owe more taxes, you should pay attention to your W-4. If, as a taxpayer, you are not able to make the estimated tax payment, then you will owe taxes even if your other job was initially taxed.
A family with dependents has the added advantage when it comes to being taxed since less tax was deducted from their pay, but now, they have to pay regular taxes, and you need to update your W-4, but if you have not, this means you owe more tax.
What Steps To Take
There are several steps to take to curb the damage that may be caused by owing taxes, and this includes filing your tax early when you owe more money, or you have an assumption that you do. This will help in finding out the deficit you have and allow you more time to acquire the balance.
Moreover, if you were to get a refund instead, it will also be an advantage since it will come early. However, if you owe the IRS and fail to pay on time, you will be subjected to a penalty, so it’s better to be on the safe side.
Negotiating a payment plan. It may be quite challenging to pay the tax you owe, and hence a payment plan can be arranged that enables you to pay for 120 days. If you prove to comply with the requirements, you can also get an extension of the 120 days.
You can qualify for an ”offer in compromise,” which will enable you to pay a less than the amount you owe, but you have to meet the specific requirements. When the IRS discovers that you cannot manage to deliver, they will give you more time until you can be financially stable and pay. In addition, some penalties can be waived in certain circumstances.
If you owe tax or you have an assumption that you may owe taxes, consulting a professional is the best way to go. Accountants can help aid in educating you about tax brackets and the passages from one tax bracket to another; this is to prevent more confusion in the future. Also, you will be able to learn about the differences in tax from one state to another.