Many taxpayers start preparing their tax returns, hoping to receive a sizable refund, only to find out that their actual refund is much smaller than expected—or that they owe the federal government money instead! If this happens to you, here are some of the likely reasons why you received a tax bill:

Why a tax bill?

• Higher take-home pay. Take out last year’s W-2 and review the federal income tax withholding. Now check this year’s W-2. If it is lower, you will need a corresponding reduction in your tax obligation to get the same refund as last year. The good news? You’ve had more of your income available to you throughout the year. The bad news? Paying less tax each pay period can result in a lower refund or a tax-due balance at tax filing time.
• Withholding tables are not always accurate. The IRS provides businesses with tax tables to determine how much of their paycheck should be withheld to pay their taxes. While these tables are mostly accurate, sometimes they instruct your employer to withhold more than necessary, leading to a refund. But sometimes, the opposite is true, and your employer may not withhold enough, leading to a balance due.
• You earned money from a side hustle. You are responsible for making payments to the IRS for taxes you owe from working a side hustle or as a freelancer. If you didn’t make these payments to the IRS as you earned the money throughout the year, you’ll have to make a lump-sum payment when you file your tax return.
• Your state takes a different path. Tax laws passed by many states closely mirror those passed by the federal government. But many times, these laws never match 100%. While you may see a refund on your federal tax return, you might owe money on your state tax return.

Now what?

With the uncertainty of whether or not you’ll receive as large of a refund as you’re expecting, consider holding off on plans to spend your refund until your tax return is finalized. Contact our RRBB advisors if you have any questions or concerns.