How to Figure Out Why You Owe Money to the IRS
Hi All - if this isn't the appropriate place to ask this non-legal question, excuse me. I know many of you are very knowledgeable so I thought I would get some great answers.
My wife and I prepared our tax return this week and according to the math, we will owe the IRS over $2,000 in federal taxes. I have no idea why this is the case. Our joint gross income is $80k. On my W-2, I have 2 exemptions, and per the personal allowances worksheet, this is the "correct" amount to have. My wife received 3 w-2's, all of which she has listed 0 personal allowances. She also received $3,200 from 1099-MISC sales commissions of which NO tax was withheld, and $2,100 from an insurance provider for 3rd party sick benefits, of which only social security and medicare tax was withheld. We moth make contributions to qualified retirement plans (401k's) and I also had deferrals going into a QHDP HSA. Finally, we had our first child in Oct. 2015.
Is there anything I'm missing? With using a standard deduction of $12,600 and the child tax credit, how can we owe this much money in federal taxes when we both had the "normal" amounts withheld? If it matters, we filed jointly last year, had income slightly lower, no child, and got a refund in excess of $1,500.
Thank you.
PS - I have never itemized healthcare costs because I was under the assumption that ANY payments made (co-pays, prescriptions, bill balances) from a qualified HSA couldn't not be itemized due to "double-dipping" since HSA funds are pre-tax deductions. Is this accurate?
Re: Owe the IRS and Not Sure Why
That isn't really a legal question. That's one for a CPA.
Re: Owe the IRS and Not Sure Why
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free9man
That isn't really a legal question. That's one for a CPA.
True. If this should be removed feel free. Like I said, I know the guys responding on this particular forum are pretty knowledgeable about tax law. I will be seeing a local CPA to have him go thru it all and see what can be done. Thanks anyway.
Re: Owe the IRS and Not Sure Why
There's no way anybody can comment without a thorough review of your return.
Re: Owe the IRS and Not Sure Why
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free9man
That isn't really a legal question. That's one for a CPA.
I disagree that it is not a legal question. After all, tax law is still law. :D
However, without looking at the entire return for this year and last I cannot comment on what the difference was that caused the balance due this year versus the refund last year. But I will note that the withholding exemptions for a job are computed assuming that the income from that job is the only income you have. With two incomes, the tax rates can get higher so that even if the exemptions were right if all you had was that one job it may not be right once you add the two together. Then throw in the various other income like sales commissions (which might have been subject to self-employment tax as well as income tax) and the sick pay and the withholding may well have been too low.
Re: Owe the IRS and Not Sure Why
Thanks Taxing Matters. I understand all the variables that can affect taxable income and plan to have this all looked over by a CPA. Are you able to direct me to 2014 Form 1040 tax tables? I have searched for hours and can only locate the 2015. Thinking back, I'm wondering if my return from last year is wrong. Based on the 2015 tax table, with the taxable income that we have, the tax liability is close to $12,000. Last year, with practically the same taxable income (less $1,500), our tax liability was only $8,500. I cannot find the 2014 tax tables to verify the taxable income of $63,400. Did federal taxes increase from 2014 to 2015?
Re: Owe the IRS and Not Sure Why
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KBoy420
Thanks Taxing Matters. I understand all the variables that can affect taxable income and plan to have this all looked over by a CPA. Are you able to direct me to 2014 Form 1040 tax tables? I have searched for hours and can only locate the 2015. Thinking back, I'm wondering if my return from last year is wrong. Based on the 2015 tax table, with the taxable income that we have, the tax liability is close to $12,000. Last year, with practically the same taxable income (less $1,500), our tax liability was only $8,500. I cannot find the 2014 tax tables to verify the taxable income of $63,400. Did federal taxes increase from 2014 to 2015?
To expand on what Taxing Matters said:
Your wife had three W2s. Each one of those jobs withheld taxes based as if each of those jobs was her only income for the time period she was working. If she had any of those jobs at the same time, that automatically made her withholding too low. On top of that she had 1099-MISC income which likely resulted in some self employment tax, and no withholding. Then there was the third party sick pay with no withholding either.
You, on the other hand, had the more stable income yet you took 2 exemptions, which means that your withholding was more designed for break even than a refund. So there was nothing left over in your withholding to help cover your wife's insufficient withholding, and your child was not enough of an added benefit to overcome that.
Rather than comparing this year's income with last year's income, you should compare this year's total withholding to last year's total withholding...relative to total income. I think that you will find that relatively speaking you had much less withholding this year.
As far as finding last year's tax tables, go to irs.gov and search for 2014 1040 instructions.
Re: Owe the IRS and Not Sure Why
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KBoy420
Are you able to direct me to 2014 Form 1040 tax tables? I have searched for hours and can only locate the 2015.
Here's Publication 17 for 2014. The tax tables are in there.
https://www.irs.gov/pub/irs-prior/p17--2014.pdf