As the tax season unfolds, taxpayers may find themselves facing unexpected obligations to the IRS, not because of luck but due to specific financial activities or life changes throughout the year. According to tax experts common reasons for owing taxes include inadequate withholding on the W-4 form, income fluctuations, changes in contributions to health savings accounts (HSAs) or flexible spending accounts (FSAs), and withdrawing from retirement accounts. Understanding these triggers can help taxpayers anticipate their tax situation.
Significant life events such as employment changes, marriages, or the arrival of a new family member can alter tax liabilities. For instance, failing to update the W-4 form after these events may result in insufficient tax withholding. Additionally, the taxation of supplemental wages, unemployment compensation changes post-COVID, and the specific use of HSA and FSA funds can also affect tax returns, potentially reducing refunds or leading to tax payments.
Social Security beneficiaries, especially those experiencing recent cost-of-living adjustments, might find themselves taxed on their benefits, depending on their combined income. With tax obligations potentially arising from various sources, other experts recommend filing taxes early, regardless of the expected outcome, to avoid penalties and explore payment options if unable to pay in full. This proactive approach, coupled with awareness of tax code adjustments for inflation, may better position taxpayers for future filings.
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