Why Do I Have to Pay More Taxes this Year?tax tips | March 06, 2018 | By Susannah McQuitty
There’s nothing quite like filing your tax return and realizing that you have a much smaller refund than last year—or even having to pay more taxes. If it’s a surprise, that’s even worse.
Let’s talk about some work and life changes that can impact your tax situation.
Getting a raise
It’s no surprise that earning more money means paying more taxes—your tax liability is calculated by percentages, after all—but a raise could also bump you into the next tax bracket. A higher tax bracket means a higher tax percentage (at least for the amount of income exceeding your previous bracket), so you could be looking at a smaller refund than you’re used to getting.
If you do get put in a higher tax bracket, you should look into adjusting your W-4, which controls how much money your employer withholds from each paycheck for taxes.
Once you’re home from the honeymoon and ready to dive into real life together, deciding how to file your taxes as a married couple is an important financial step. For most couples, filing a joint return is the best option because it opens up the most benefits (you can file separately too, but there are specific circumstances under which this saves the most money).
Since you’re combining the income from two adults, the amount of taxes you owe will be higher than if you filed as a single person—but you also have two people to pay that tax liability. On paper, you may seem to owe more taxes; in reality, the amount you contribute individually will likely be close to what you paid in your single years.
There are also more tax breaks available for couples filing jointly, so you’ll also have more opportunities to reduce your joint tax liability.
Facing the empty nest
Watching your kids take off into the world comes with a host of emotions and financial changes (wait, I don’t have to go to the grocery store for cereal eight times a week anymore?). Part of that financial change affects your taxes; you won’t be able to claim your kids as dependents anymore.
Even college graduation can affect your wallet. No, you’re not getting punished for the fact that your kid walked across the stage, but all those student tax breaks that helped you get Johnny through school are bowing out. You won’t qualify for the American Opportunity Credit or the tuition and fees deduction, so you may see a decrease in your tax refund.
But hey—you are saving a lot of money on cereal, 45-minute showers, and phone plans. Everything balances out eventually!
Still not sure? Compare tax returns
Many factors go into determining your tax liability, so if you come up with a smaller refund or even owe taxes this year, compare this tax return to your previous one. What changed? Can you identify new forms added or different sources of income?
When you file with 1040.com, we guarantee your maximum refund. We’ll help you get the tax breaks you qualify for, even if your tax liability went up this year, so there’s no reason to panic.