Typically, you would need to pay state taxes because there was not enough tax withheld from your paychecks to cover your liability for state tax. You might owe state taxes even if you owed nothing to the Federal government because Federal and state governments have different tax brackets.
Why do you owe state taxes? Before you can understand this, you need to know how the tax system works. Both the Federal government and all 50 states have the right to collect taxes. Currently, 43 states operate a state income tax system, with California charging a massive 13.3%.
State income tax brackets and earning thresholds differ not just from federal income taxes but also between each state. When you file your taxes, you’ll need to file a state tax return alongside your federal tax return if you live in one of the 43 states that assess income tax.
You may owe state taxes even if you don’t owe federal taxes because federal and state governments use different tax rules, brackets, and calculations. While your income might fall below the federal tax threshold, it can still be taxable at the state level.
Another common reason for owing taxes is underwithholding. If too little state tax was withheld from your paycheck, you may need to pay the remaining balance when you file your return. Changes in income can also affect your eligibility for certain deductions or credits, such as the Earned Income Tax Credit, which may result in a state tax bill.
How you file your return also matters. Choosing to itemize deductions instead of taking the standard deduction (or vice versa) can change your taxable income and impact what you owe to the state.
Finally, major life changes can affect your state tax liability. These may include:
Any significant change in income or personal circumstances can alter how much state tax you owe. It’s important to get professional advice to ensure you’re not underpaying or overpaying.
Now that you know the answer to the question, “Why do I owe state taxes this year?” you might be wondering how your tax burden contributes to society. States use your taxes to cover things like school districts, social services, and the police. Seven states currently do not levy state income tax, gaining funding in other ways, including sales tax.
If you worked in multiple states, you may owe taxes in multiple states. Ask your accountant how to handle this tax situation when filing.
Taxes come in multiple forms, and you pay them at different times. Sales tax, for instance, gets paid at the point of sale whenever you purchase something. You may pay estimated quarterly taxes or pay a lump sum come tax time. Understanding the varied types of taxes helps you figure out how much you're paying. If you're self-employed and a business owner, you may pay more taxes.
Different types of taxes you might need to pay include:
Not every state levies all these taxes. Speak to a tax professional who can help in understanding your tax situation and taking advantage of any tax breaks for which you may qualify.
Now that you understand why you owe taxes at the state level, it’s important that you know how to file and pay them during each tax year. Your state income tax return must be filed alongside your federal tax return, which can be done via e-filing. It's around this time of year that searches for "Does state tax come before federal taxes?" rise, and the answer is no. It’s no longer possible to e-file your state tax return before your Federal return. Filing is relatively simple, as most of the same information you entered on your federal return will also be used on your state tax return.
A specialized tax accountant who understands the tax code of your state can answer questions like "How do I know if I owe state taxes?" while also helping you avoid paying unnecessary taxes.
As with your federal return, be mindful of deadlines. If you fail to file or pay on time, your state’s tax agency can levy penalties and interest. Double-check dates and add them to your calendar.
Even if you are stunned by the amount owed, pay anyway. You can always file a dispute later if you believe you’ve overpaid.
You likely live in a state where you’re required to pay annual state taxes. Federal taxation is complicated enough, and state taxation can be even more layered.
To help you understand the answer to "Why do I owe taxes this year?" it’s a good idea to hire an accountant. Porte Brown has been helping citizens file their state tax returns for decades. For a professional team that understands the Illinois state taxation system inside and out, trust Porte Brown. We are a top Chicago CPA firm with a unique perspective on financial management solutions.
The safest way to know whether you owe taxes at the state level is to hire an accountant to file your taxes. They will sort through your financial data for the previous year, identifying whether you owe state taxes. Remember that federal vs. state taxes are different, so even if you owe nothing at the federal level, you may still owe them at the state level.
State and federal taxes are filed simultaneously. That said, many taxpayers may not realize they are processed by different entities. Because of this, any refunds you receive may arrive at different times.
"Why did I owe state taxes?" is a common question, and one we can answer. Suddenly owing state taxes can be due to factors such as moving into a higher tax bracket, filing status changes, having combined incomes, or changing jobs, among others. Your accountant can help explain the reasons for your specific tax filing.
It's entirely normal to owe more state taxes due to factors like underwithholding, different tax bracket rules, and lower state deduction rules, among others. Your accountant and financial advisor can help you legally lower your taxable income, so it's worth working with them.
Get in touch today and find out how we can help you meet your objectives.
