Now I owe the IRS...Why? And how do I pay them?
Now I owe the IRS…..Why? And how do I pay them?
Knowing why you owe the IRS takes some of the frustration out of actually owing the IRS. There are several reasons why you would owe the IRS when you prepare your tax return. Here are several reasons why you may get surprised by a tax bill:
Your W-2 withholdings are to low. When you start any employment you are required to complete a Form W-4 to estimate the amount of taxes you may owe for your annual earnings. If you do not have any other income and owe at the end of the year, you will want to check out what you have chosen to have withheld from your paycheck.
Your investments were greater than you expected. Although you may have a dividend re-investment process, or you sell stocks to buy others, you have a taxable event of which you may not be aware.
You are an independent contractor. You may not think of yourself as a small business owner in this situation, but you are! With this luxury, there are many responsibilities. Paying your self-employment and income taxes are two of those. Unlike a W-2 employee that has their employer withhold and pay these taxes, you must do this.
These are some very simple reasons. Each person’s tax situation is a unique as they are. OK, now you know you owe the IRS, how do you go about paying them?
IRS Tax Tip 2021-50 provides a very detailed explanation with links on the five ways that you can pay your taxes.
Electronic Funds Withdrawal: Just as receiving your refund by direct deposit, you can have any amount owed by direct debit. This entails you providing the IRS with authorization to pull the amount you owe out of your bank account on a specific day. When filing your taxes electronically, this is an option.
IRS DirectPay: This is an option available directly on the IRS website at www.irs.gov/payments/direct-pay. Using a bank account (you will need your routing and account numbers), there is no fee to pay your outstanding tax liability in this manner.
Pay by credit card: You can pay the IRS via a credit card. When using this feature, you will start at the IRS website https://www.irs.gov/payments and select the debit card or credit card option. The IRS pairs with several companies that will process your payment. There is a fee to use this service, so be aware.
Make a cash payment at more than 60,000 participating locations. These are usually retail stores such as 7-11, CVS, Family Dollar, etc. There is a fee charged for payments made this way and may vary by location. Visit the IRS website at https://www.irs.gov/payments/pay-with-cash-at-a-retail-partner for full details.
We are here to help you understand these options as well. Even better, we offer our services to help you reduce the amount you have to legally pay the IRS. Please contact our office for a complimentary conversation on how we can help you lessen your tax liability burden.