Why Do I Still Owe Taxes if I Claim Zero? - Wikiaccounting (2023)

Did you file your return expecting a big refund but end up receiving a tax bill?

A lot of times, it happens to taxpayers that they file the return in expectation of receiving a refund by claiming zero allowances. However, they actually owe taxes to the state or federation. It’s justified to ask a question like, why do I still owe taxes if I claim zero?

It’s a common misconception among U.S. citizens that if they do not claim any allowances, enough money is being withheld from their paycheck to equal the total tax liability. But in reality, it is just like ending up giving an interest-free loan to Uncle Sam all year.

Therefore, it’s important to understand how Form W-4 works, how you should claim for allowances, and how to adjust your withholding tax, so you don’t owe the IRS.

This article will answer all the questions related to withholding taxes, claiming allowances, and making your tax bill zero at the end of the year.

What Are Withholding Taxes?

Withholding tax can be defined as the taxes that are deducted at the source. It’s called Federal Withholding Tax, and the information is provided in Form W-4.

The withholding taxes can be regarded as advanced tax payments. If you’re living in the USA, your employer deducts the withholding taxes from your paycheck and pays them directly to the IRS.

You can use Tax Withholding Estimator by IRS here to estimate your income tax for any year. Or, if you’re a salaried individual, estimating your withholding tax can be easy.

What Is Form W-4?

As mentioned, the information about how much tax should be withheld from your income is reported in Form W-4. So what is this form?

When an individual starts his job with an employer, the employee must file a Form W-4 to determine the amount of federal tax to be withheld from his paycheck.

Therefore, we can define Form W-4 as a declaration form by an employee to determine the amount of withholding tax.

The Form W4 contains information like allowances, personal exemptions, benefits, etc. As soon as an employee joins a job, he must fill out the form as soon as possible.

Once you leave a job and go to a new place, you will need to file a new W-4. Even if the financial position of individual changes without switching jobs, he must revise the previous Form W-4.

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The amount of tax withheld by an employer depends on allowances claimed by an employee in his Form W-4. The more the allowances claimed, the lower the amount of tax withheld.

Therefore, people generally think that claiming fewer allowances will make their tax liability smaller, and they won’t have to pay anything at year-end.

But does it actually work like this?

We will answer this in the next section.

What Are Withholding Allowances?

It’s important to understand the withholding allowances so that you know which allowances to claim and which to give up when filling out your Form W-4.

Withholding allowances can be defined as the exemptions in your income that will reduce the amount of tax withheld from the paycheck. It defines how much income tax should be deducted from your paycheck in every pay period.

Why Do I Still Owe Taxes If Claim Zero?

Now to the most important question: Why do I still owe taxes if I claim zero?

In most cases, claiming zero allowance on your Form W-4 will entitle you to a refund and no tax owing to IRS. But if you still have taxes payable, there might be special cases and situations specific to you.

For instance, if you’re married and you have added married on your Form W-4 and claimed 0 in allowances. It will give an impression that you’re the sole earner of the home and your spouse is not bringing in any income. But in reality, both of you’re earning an income.

What is the result?

When your collective income reaches the 25% of the tax bracket, the amount withheld from your paycheck alone won’t be enough, and you will have to pay more in taxes. When you and your spouse fill out two W-2 Forms, the tax bracket doubles, resulting in an incorrect withheld tax amount.

Another situation when you still owe taxes to the IRS despite claiming zero in allowances is a huge disparity in income. For instance, the amount of tax withheld by your employer is for the paycheck he is going to pay you.

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If you have other sources of income like freelancing, dividends, etc., the amount withheld by the employer will not justify the total tax liability. As a result, you will have to pay more tax.

Why do allowances matter for taxes?

Firstly, allowances directly affect the amount of tax to be withheld from your paycheck. Unlike your belief that there will be no tax payable at the end of the year, you might end up with a tax bill instead of a big refund once your tax return is processed.

If you’re claiming zero allowances, it will increase the amount of tax withheld and decrease the income you’re taking home. At the end of the year, you’re entitled to a refund from the government.

However, if you’re claiming too many allowances, your withheld tax becomes very low, and you will have to pay the tax bill and a penalty for underpaying your withholding tax.

What is the conclusion?

Claiming no allowances at all or claiming too many allowances can hurt your tax return and income. Therefore, it’s important to understand how to claim allowances when filling out your Form W-4.

How Many Allowances Should You Claim?

Now you know that you might be subject to a penalty if you are underpaying the allowance or overpaying is not even beneficial for you. We will tell you how many allowances you should claim and when you should claim zero in allowances while filling out Form W-4.

Claiming Zero Allowances

When you claim zero allowances, the maximum amount of tax is deducted from your paycheck. You should claim zero allowances when you are claimed as a dependent by someone else on their tax return. When you file the return at the end of the year, you are entitled to a refund.

Claiming One Allowance

Singles with one job should claim one allowance in their Form W-4. As a result, the taxes approximately equal to your total tax liability are withheld in your paycheck, leaving you with no tax liability.

Claiming Two Allowances

You can claim two allowances as a single, taking you closer to your total tax liability. But you should expect a tax bill at the end of the year.

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For singles with more than one job, claiming one allowance at each job or two at one and zero is the right option.

Married people should claim two allowances in their Form W-4

Claiming Three Allowances

Married people with one child should go after three allowances.

Additional Allowances

Some tax filers can also claim additional allowances when filling out Form W-4. It includes an allowance for the head of the household, child or dependent care expenses above $1900, and Child Credit Tax.

How To Owe Nothing On Your Federal Or State Tax Return?

You can do some homework to make sure that you do not owe anything such as Federal or State taxes. If you are carefully filling out your Form W4, it will help you save yourself from an unwanted tax bill.

Besides, you can also make corrections and revisions to your Form W-4. If you have identified the reason why you owed taxes despite claiming zero in Form W-4, you should immediately fill out a new Form W-4 and submit it to your employer.

First of all, you must be able to estimate the total salary or income for a year. For salaried persons, it will be easy to calculate the total income by multiplying the value of one paycheck with the total pay periods in a year.

But most people have other income sources like commissions, freelancing income, interest & dividends, cryptocurrency, etc. In that case, you must make a smart guess about your annual income.

Once there, you should use a tax withholding estimator to calculate the amount of tax that should be withheld from your paycheck to leave you with no tax liability.

If the amount being withheld from your paycheck is not enough to be equal to at least 90% of your total tax liability, you can fill Line 6 of Form W-4 to file for additional withholding tax.

Final Words

We have discussed everything about your queries related to withholding taxes and allowances in your Form W4. We hope you will have located why you are paying taxes despite claiming zero in your Form W-4.

Do let us know about any more tax questions and queries that might be a problem for you.


Why do I owe money on my taxes when I claimed 0? ›

If you claimed 0 and still owe taxes, chances are you added “married” to your W4 form. When you claim 0 in allowances, it seems as if you are the only one who earns and that your spouse does not. Then, when both of you earn, and the amount reaches the 25% tax bracket, the amount of tax sent is not enough.

How do taxes work if you claim 0? ›

By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.

Why am I always owing money on my taxes? ›

A tax bill really just boils down to simple math: You owe more taxes than you paid throughout the year. That usually means you didn't have enough money withheld from your paycheck to cover taxes.

How do you end up owing taxes? ›

Here are the five most common reasons why people owe taxes.
  1. Too little withheld from their pay. You can give yourself a raise just by changing your Form W-4 with your employer. ...
  2. Extra income not subject to withholding. ...
  3. Self-employment tax. ...
  4. Difficulty making quarterly estimated taxes. ...
  5. Changes in your tax return.

Do I owe taxes if I made no money? ›

Individuals who fall below the minimum may still have to file a tax return under certain circumstances; for instance, if you had $400 in self-employment earnings, you'll have to file and pay self-employment tax. If you have no income, however, you aren't obligated to file.

Should I claim 1 or 0 if single? ›

Single. If you are single and do not have any children, as well as don't have anyone else claiming you as a dependent, then you should claim a maximum of 1 allowance. If you are single and someone is claiming you as a dependent, such as your parent, then you can claim 0 allowances.

At what point do you start owing taxes? ›

Not everyone is required to file or pay taxes. Depending on your age, filing status, and dependents, for the 2022 tax year, the gross income threshold for filing taxes is between $12,550 and $28,500. If you have self-employment income, you're required to report your income and file taxes if you make $400 or more.

Does owing the IRS ever go away? ›

Once a lien arises, the IRS generally can't release the lien until the tax, penalty, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax. Paying your tax debt in full is the best way to get rid of a federal tax lien.

How much can you make without owing taxes? ›

Under age 65. Single. Don't have any special circumstances that require you to file (like self-employment income) Earn less than $12,950 (which is the 2022 standard deduction for a single taxpayer)

What happens if you owe taxes but cant pay? ›

If you can't pay all or some of the taxes you owe, you can apply for a Long-term payment plan (installment agreement). The agreement allows you to pay any taxes you owe in monthly installments.

How much can you owe on taxes without penalty? ›

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is ...

What is the best tax withholding for a single person? ›

According to Liberty Tax declaring one as your tax withholding is a good bet if you're single and you work just your 9 to 5. This allowance could get you a refund. If you claim zero, the most will be taken out of your paycheck and you will most likely get a refund.

Can I still claim 0 on my w4 in 2022? ›

First, you can only claim a total exemption from withholding if you owed no federal tax last year and you don't expect to owe anything in 2022, either. Otherwise, you may owe the IRS a hefty tax payment after year's end if you claim to be exempt but you don't meet these rules. You may owe a financial penalty as well.

Does the IRS come to your house? ›

However, there are circumstances in which the IRS will call or come to a home or business. These include when a taxpayer has an overdue tax bill, a delinquent (unfiled) tax return or has not made an employment tax deposit.

Does IRS debt go away after 7 years? ›

Generally, under IRC § 6502, the IRS will have 10 years to collect a liability from the date of assessment. After this 10-year period or statute of limitations has expired, the IRS can no longer try and collect on an IRS balance due.

Is IRS debt forgiven after 10 years? ›

Generally speaking, the Internal Revenue Service has a maximum of ten years to collect on unpaid taxes. After that time has expired, the obligation is entirely wiped clean and removed from a taxpayer's account. This is considered a “write off”.

Can you claim 1 if you are single? ›

Claiming 1 Allowance

This is a good option if you're single and only have one job. You may also claim 1 if you're married but filing jointly—or if you're filing as the head of household (see def. here). You'll most likely get a refund back.

Should I claim 1 exemption for myself? ›

You are generally allowed one exemption for yourself if you cannot be claimed as a dependent on any other taxpayer's return — whether or not the other taxpayer chooses to claim you.

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