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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28082
Experience:  Taxes, Immigration, Labor Relations
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Why do I keep owing State and Federal income tax?

Customer Question

Why do I owe both Federal and State taxes every year even after I dropped my exemptions and I make the same amount of money?

Submitted: 7 years ago.
Category: Tax
Expert:  Lev replied 7 years ago.

Your withholding is based on how you file W-4 form.

If you are single, do not have any dependents, standard deduction, no additional credits or deduction - generally - you should file as Single with two allowances.

If you provide your gross income - I will help estimate your tax liability and withholding.

Lev and 2 other Tax Specialists are ready to help you
Customer: replied 7 years ago.

2006 - Gross Income $16,333; I owed Federal $57, State $18; 2 exemptions (not sure)

2007 - Gross Income $16194; I owed Federal $401, State 227 ; 3 exemptions

These taxes were paid through The Stimulus Package

2008 Gross : $18612.16; Federal $691; State $457; 2 Exemptions

All years I filed single, no dependents, no special credits deductions, etc.

I've since dropped down to 1 exemption. I'm also paying monthly taxes for '96 that accrued 10 year penalty fees because one of W2s were not attached to my taxes that year and the IRS filed them . I only found that out 10 years later when my bankruptcy attorney told me this was outstanding in '05-06. What can I do? I'm also paying back student loans.

Expert:  Lev replied 7 years ago.

2006

Adjusted gross income - $16,333.

Taxable income - $16,333-$5150-$3300 = $7883.

Tax liability - $805.

If you filed W-4 as Single with 2 allowances (that is correct filing) - you’re withholding should be $708 and would owe $100.

2007

Adjusted gross income - $16,194.

Taxable income - $16,194-$5350-$3400 = $7444.

Tax liability - $744.

If you filed W-4 as Single with 3 allowances (that is incorrect filing) - your withholding should be $334 and would owe $400.

You should be filing 2 allowances - your withholding should be $674 and would owe $70.

2008

Adjusted gross income - $18,612.

Taxable income - $18,612-$5450-$3500 = $9662.

Tax liability - $1048.

If you filed W-4 as Single with 2 allowances (that is correct filing) - your withholding should be $962 and would owe $100.

It is possible that you (or your payroll person) changed withholding not at the beginning of the year - and that resulted large net liability - that should be investigated to identify the real reason.

2009 - Estimated

Adjusted gross income - $18,612 – assumed.

Taxable income - $18,612-$5700-$3650 = $9262.

Tax liability - $972.

If you filed W-4 as Single with 2 allowances (that is correct filing) - your withholding should be $459 - you should claim a new payroll tax credit up to $400 per person - and would owe $100.

If you do not want to owe - following are options:

-- On W-4 form mark additional withholding - $5 per paycheck

-- You may also put 1 allowance instead of two - that will result in $1006 withholding and you will be getting a credit $400.

Please be aware as any changes will be done not at the beginning of the year - their affects should be prorated.

If you are paying student loan - you should receive a form 1099-E - http://www.irs.gov/pub/irs-pdf/f1098e.pdf - that reports the interest you paid - that is deductible on your tax return.

If you have outstanding tax debt - I suggest setting installment agreement with the IRS.

Let me know if you need any help.