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- Individuals who receive a refund may end up in debt this tax season.
- Common reasons include not paying quarterly taxes if you are self-employed or not renewing your W-2 employee status.
Filing your taxes is a task that few people enjoy. But the frustration is worth it when you get a refund. This year, however, many financial experts warn that refunds will be smaller. You may even find yourself in debt that you will never pay back.
According to Logan Allec, accountant and owner of Choice Tax Relief, there are many reasons why you might not get a refund this year. Let’s take a look at six common reasons why some people may pay money to the IRS.
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1. You’ve earned more than $600 in one hit
More and more people are making money from side hustles in addition to their full-time jobs. If your excess brings in more than $600 in 2022 and you received that income through an app like Venmo or PayPal, you’ll receive a Form 1099-K from the payment platform. you are in debt in January.
According to Allec, there will be more 1099s going out this tax season due to the shortened 1099-K deadline. Before 2022, you will not receive a 1099-K until you have earned more than $20,000 or completed more than 200 transactions with that processor.
But for the 2022 tax year, payroll processors must issue 1099-Ks to anyone who received more than $600 for goods and services, even if it was just one.
This means that many people who should have reported income from overdrafts did not because they did not earn enough to qualify for a 1099-K. Allec said that due to these new guidelines, they are forced to report their income.
2. You are self-employed
If you are self-employed, you are responsible for paying your taxes every three months. Your quarterly payments for 2023 are on April 18, June 15, September 15 and January 15, 2024.
If you don’t pay your quarterly taxes – or don’t pay them at all – you could be in debt at the end of the year. And because you have to pay an estimated monthly amount, the IRS can charge you additional penalties and interest.
But you don’t just pay income tax. Employers must pay half of your Social Security taxes and Medicare taxes when you have a job. If you are self-employed, you must pay the entire bill. However, you can deduct the employer equivalent portion of this when considering your income.
3. You changed jobs
If you switched to a new job in the past year, this may have a tax impact.
“A mid-year job change will affect your taxes if your income shifts between the two jobs,” Allec explains.
If your new job pays more and moves you into a higher tax bracket, you’ll end up paying more tax time. But Allec says a job change can affect your expected refund for reasons other than a change in tax liability.
“Let’s say that halfway through the year you go from a job making $25,000 a year to a job making $12,000 a year. your salary because your total annual income is $12,000 less your deductions common,” he explained.
So, if you paid federal taxes on $12,500 you earned during the first half of the year, you paid none on the $6,000 you made during the rest of the year. This could leave you in debt at tax time because you have to pay taxes on that $6,000 because nothing was withheld during the year.
We estimate that you will be in debt
4. You collected unemployment
Unemployment benefits are taxable, but most states do not automatically withhold your taxes.
Beneficiaries can often choose whether to pay taxes through withholding or through estimated payments.
If you received unemployment benefits in 2022, you should receive your Form 1099-G by the end of January so you can report the amount on your federal tax return. If you haven’t paid taxes on your benefits, you may owe money when you file.
5. You lose eligibility for certain credits or deductions
Ineligibility for certain credits and deductions can cause you to owe money at tax season. A tax deduction reduces taxable income before tax liability is calculated, while a tax credit reduces your tax bill dollar-for-dollar.
For example, Allec noted that the child tax credit has been reduced from $3,600 per dependent in 2021 to $2,000 per dependent in 2022. in 2021.
“And there is no longer any reinstatement credit for missed stimulus payments or payments for children born during the work year,” Allec added.
6. You sold stocks or cryptocurrency
Finally, if you sell investments in a non-retirement account and make a profit, you may be subject to capital gains tax. These investments include things like stocks, cryptocurrency, international currencies, and exchange-traded funds (ETFs).
All gains from stocks or crypto should be reported on your tax return. You will be taxed on the difference between your basis (usually your purchase price, but sometimes there are adjustments) and the proceeds from the sale. Your tax rate will depend on how long you hold the investment before selling it and your total income for the year.
While taxpayers usually have to pay tax on capital gains from investments, Allec said there are exceptions, such as if they have a capital loss equal to or greater than their annual income. you.
“If this is the case, you will not pay tax on the capital gains on stocks or cryptos that you sold at a profit because the capital losses have wiped them out,” he said.