What Are State Taxes Used For

An account helps a couple with their state taxes Filing taxes may not be your favorite fiscal chore but it is a necessary one to stay in the good graces of the IRS. Why do I owe state taxes is a question you might have if filing your return has resulted in a tax bill rather than a refund. There are different reasons why you lot might owe state income taxes this year. Knowing what'southward behind your state revenue enhancement bill can help you lot program ahead for next year and so you don't end up attributable again. A financial advisor can assist you avoid paying more than y'all demand to the state and federal governments.

Country Taxes vs. Federal Taxes: What'south the Departure?

Both state governments and the federal government tin can collect income revenue enhancement, too as other types of tax. But they aren't exactly akin.

First, federal taxes apply to anybody, regardless of which land you alive in. While there are some exceptions, the IRS requires most people to file a tax return. The data you provide on your federal revenue enhancement return is used to determine what you owe in federal income revenue enhancement.

And then what determines if you owe federal taxes or become money back? If yous paid likewise much in taxes during the year through payroll withholdings, then you may go a refund. If you lot paid besides little in withholding so y'all may owe additional taxation.

If you live in a state that assesses income tax, then you'll need to file a state return along with your federal return. This return determines what you lot owe in state income taxes, based on your income and which taxation deductions or credits you claim.

The tax bracket you land in at the land level tin differ from your federal tax bracket, which is 1 reason you might owe state taxes just not federal. Again, whether y'all owe land taxes or go a refund can depend on how much you paid in tax throughout the twelvemonth.

Why Do I Owe State Taxes?

Getting a country tax bill may come every bit a surprise simply there are several reasons why you may owe money, versus getting a refund.

Over again, the first thing to keep in mind is that state and federal tax laws and tax brackets work differently. If your income inverse significantly and y'all earned more than in previous years, this could push yous into a higher tax bracket at the state level. That could result in attributable more money in taxes.

Next, consider what you withheld from your income during the twelvemonth. Once more, withholding too piddling in taxes can consequence in owing money to the state tax authorities when it's time to file. If you haven't updated your withholdings in some time, you may need to suit them to avoid owing state taxes in the time to come. Using an online paycheck calculator can aid you go an idea of what you should be withholding.

Changes in income can also affect your ability to claim sure tax credits. For example, say you previously qualified for the federal Earned Income Credit but cheers to a pay enhance, y'all're no longer eligible. If yous can no longer merits that credit on your federal taxes you could lose any similar state tax benefits.

The deductions you merits and whether yous itemize or take the standard deduction can also bear upon your state revenue enhancement nib. Having fewer deductions than previous years, for instance, could hateful you accept less to itemize. Or y'all might end up taking the standard deduction instead. Either way, that could affect your state revenue enhancement liability and cause you to owe more money.

Other situations that may bear upon your state tax filing include:

Starting a side chore or changing jobs
Underpaying estimated quarterly taxes if you lot're cocky-employed
Getting married or divorced
Becoming a widow(er)
Having a child
No longer being able to claim a child as a dependent
Reporting gambling winnings
Taking Social Security benefits for the first time
Withdrawing money from a 401(one thousand) or IRA
Buying or selling a home
Reporting capital gains from the sale of investments
Losing deductions for home mortgage interest or student loan interest because you've paid those obligations off

Keep in mind that the same things that tin result in you owing more than state taxes could also increase your federal revenue enhancement neb as well.

What to Do If Yous Owe Country Taxes

File folders for taxes If you owe state taxes this year it's important to pay what's owed by the filing borderline. Otherwise, your state tax agency could charge yous penalties and interest for each day your outstanding residuum goes unpaid. That could terminate up adding to what you lot owe. Your options for paying may include writing a check, paying by credit card or taking out a personal loan. If yous can't pay your state taxation pecker in total, it's of import to arrive touch with your state tax agency. Your state may let yous to prepare an installment payment plan to pay what's owed, similar to the installment agreements the IRS offers for federal taxes.

If you're debating whether to utilize a credit card to pay state taxes, be aware of what each option may cost. A credit card that has a loftier APR could make paying state taxes more expensive. In that instance, you'd desire to expect for a card that offers a 0% introductory charge per unit for purchases. Just be sure you understand when the promotional flow ends so you know when the regular April kicks in. Also, consider any processing fees your state revenue enhancement agency may charge for credit bill of fare payments.

How to Avoid Owing More than in Country Taxes

If y'all want to avoid having to ask why practise I owe state taxes next year, there are some things you can practice to programme ahead. First, check your tax withholding with your employer to see if you're withholding the appropriate amount based on what you earn, your filing status and the deductions or credits you anticipate taking. If necessary, you lot tin fill out a new Form Due west-four to update your withholding.

If you lot're self-employed, review what you're paying in estimated quarterly taxes. Estimated quarterly tax payments allow you lot to pay into the federal and state taxation systems through the year in place of an employer'south withholding. If y'all owed state taxes because you underpaid your quarterly taxes, then you may need to increment what you pay in each quarter.

Adjacent, consider whatsoever life changes that may accept impacted your tax filing. For example, if you lot got divorced or separated and had to alter your filing status that can affect how you're taxed. But y'all might be able to start the possibility of a bigger state tax nib by increasing your deductions or qualifying for tax credits.

Speaking of credits and deductions, await at what yous claimed for the most current tax year. And then consider which credits or deductions you may claim for the side by side taxation yr. It's possible you may be overlooking valuable deductions that could aid yous avert a higher tax pecker. Contributing to an IRA, for instance, could assist you snag a deduction for those contributions. And you may also be able to qualify for the retirement saver's credit.

The Lesser Line

A taxpayer's notebook Owing country taxes may be a financial headache, but it'due south important to understand the reasons behind a higher tax neb. Depending on your state of affairs, attributable state taxes may be a ane-time occurrence. But if y'all're worried about a repeat side by side twelvemonth, talking to a fiscal advisor or a taxation professional can help yous discover more means to minimize your taxation liability at the country and federal levels. For case, the SALT deduction may ease your tax burden.

Tips for Financial Planning

Consider talking to a financial advisor nigh the best ways to manage your land and federal tax filing to avoid a big tax neb. If yous don't have a financial advisor yet, finding one doesn't accept to be complicated. SmartAsset's fiscal advisor matching tool makes it easy to find professional advisors in your local area in minutes. Yous'll simply demand to answer a few brief questions to get your personalized recommendations. If you're ready, get started at present.
Apply SmartAsset's taxation render calculator to see how your income, withholdings, deductions and credits bear upon your tax refund or balance due corporeality.

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing most personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and pocket-sized business concern. She's worked directly with several major financial and insurance brands, including Citibank, Find and AIG and her writing has appeared online at U.S. News and World Study, CreditCards.com and Investopedia. Rebecca is a graduate of the University of Due south Carolina and she also attended Charleston Southern Academy as a graduate educatee. Originally from fundamental Virginia, she now lives on the North Carolina coast along with her 2 children.