Typically, you would owe state tax because there was not enough tax withheld from your paychecks to cover your liability for state tax. You might owe state taxes even when 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 the Federal government but 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 any 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 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, “Why do I owe the state money on my taxes?” The answer is quite simple. Your state uses those taxes to fund everything from school districts to the police. While seven states may not levy state income tax, they still gain this money in other ways, such as sales taxes.
Take Note: If you performed work in multiple states, you may not only owe state taxes to your state but to another state too.
Figuring out why do I owe so much state taxes boils down to all the various taxes you might have to pay. Additional taxes typically arise from running a business.
Some examples of different types of taxes you might need to pay include:
Not every state will levy all the above taxes. You’ll need to speak to a tax accountant who can help you understand why do I owe money on my state tax return.
Now that we’ve gone over why do I owe so much in state taxes, you might be wondering how you pay them. First, your state income tax return must be filed alongside your Federal tax return. Both tax returns can be e-filed together. 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 onto your Federal return will also need to be copied over onto your state tax return.
This is where you should hire a specialized tax accountant who understands the tax code of your state. You may be wondering, “Why do I owe state taxes every year?” but with a smart accountant, you may be able to avoid paying anything at all.
Like with your Federal return, be mindful of the deadlines. If you fail to file or pay up on time, your state’s tax agency can levy penalties and interest. But what happens if you’re stunned by the amount, and you’re asking. “Why do I owe so much in state taxes?” The answer is to pay anyway, and you can always file a dispute later if you believe you’ve overpaid.
The chances are you 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 complicated.
To help you understand the answer to “why do I owe state taxes?” 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.
Get in touch today and find out how we can help you meet your objectives.
