This is an excerpt from Dollar Scholar, the Money magazine where managing editor Julia Glum teaches you the modern money lessons you NEED to know. Don’t miss the next issue! Subscribe to money.com/subscribe and join our community of 160,000+ scholars.
I was actually looking forward to doing my taxes this year.
Money has been publishing stories for weeks about how people are getting the biggest refunds in US history thanks to the One Big Beautiful Bill Act, so I figured I had money coming. I started dreaming about what I would spend it on: concert tickets, new sneakers, maybe a vacation.
It was a crushing blow, then, when I posted one day and learned that instead of getting paid, I owed money to the IRS. Over $1,000.
This is unusual for me; I always got a small return at least. I don’t know why I owe you, much less in a year when the main story is about how much taxpayers benefit from the new law. But I will NOT let it happen again.
I unexpectedly owed money on my 2025 taxes. Why does this happen, and how can I fix it next year?
Mark Steber, chief tax officer at Jackson Hewitt Tax Service, tells me that my situation is normal. He says the One Big Beautiful Bill Act is a “feast and famine bill,” meaning it often has extreme consequences: The law either puts a ton of money in my pocket or nothing.
The law includes several provisions aimed at reducing costs for certain groups of people, such as deductions for tips and overtime and a “high bonus.” That tax deduction increased the average tax refund to $3,571.
But the improvement was not everywhere.
“If you get a $25,000 tip, it’s your refund [is] up,” Steber said. “A lot of people don’t have tips, and their refunds aren’t over yet.”
My problem was that I might be holding back. See, in the US, federal income taxes are pay as you go. Workers like me have a certain amount of tax deducted – or withheld – from each paycheck; we owe money to the IRS if that amount falls short of our credit (minus any credits).
Jason Stanfield, an associate professor at Ball State University and a member of the American Accounting Association, says employees find out if they are withholding when they fill out a W-4 form from their employer. The IW-4 asks questions about family size, multiple jobs and other income; Employers use this information to determine how much to withhold.
Problems often arise when a person experiences a life change – such as getting married, having a baby, buying a house or closing a retirement account – and neglects to review their holdings properly. (Oops.)
Steber says side hustles can be tough, too. If a person is self-employed, they must pay both halves of certain payroll taxes (a total of 12.4% for Social Security and 2.9% for Medicare). Self-employed taxpayers are generally vulnerable to quarterly prorated payments.
If someone doesn’t pay enough to the IRS through withholding or overdue payments, they end up owing a lot of money — and possibly a late payment penalty — come tax time.
So how can I fix this? To avoid nasty surprises and punishments in the future, Stanfield says it’s wise to fix my holdfield (mental (Mortand)) in the future.
I can file a new W-4 through my employer’s HR department. The IRS has a withholding calculator on its website where I can plug in information about my sources of income and family size, and it “tells you exactly what to put on that W-4,” he said.
Stanfield says I can adjust my additional withholding on line 4(c) by doing some math. The easiest way is to refer to the amount I owed in taxes this year. If I’m short on $1,200, for example, I need my employer to keep another $100 a month. That’s a $50 salary. So I put $50 — or maybe more, if I’m worried — on line 4(c).
I can even adjust my backup work to deal with my side problems.
“Your income will go down, but you won’t have the shock and horror at the end of the year as you have to pay off the balance,” Steber said.
Thankfully, I don’t have to wait until next April to find out if I did this right. I can adjust my grip at any time.
Steber recommends doing a mid-year tax assessment. In July, I have to sit down with my latest paycheck, look at my income for the year so far and multiply that income by two to get a rough estimate of how much I’ll probably make in Dec. 31. Using my 2025 tax estimate – my taxes divided by my income – I can determine how much I will owe.
I then look at the amount held so far in 2026, multiply that by two and compare it to the previous figure. If there is a gap, I can adjust my withholding before the taxes come.
An important point
Taxpayers owe money to the IRS if they don’t withhold enough taxes from their paychecks or don’t pay their estimated taxes throughout the year. To fix this, I have to do the math and file a new W-4 with my company.
It’s a delicate balance between holding too much (and getting a big return) or holding too little (and paying, like I did this year). Fortunately, it is something we all have power over.
“It’s not the government, it’s not luck, it’s not TikTok videos,” Steber said. “You have the authority to change this – up and down.”
More from Mali:
Who Doesn’t Have To File Taxes This Year? Details of Retirees, Students and Gig Workers
How To File Your Taxes For Free With TurboTax This Year
When Are Taxes Due?
