Why Do I Owe State Taxes This Year? (2023 Guide)

Understanding State Tax Obligations

State income taxes are levied by 43 states in the United States, with each state having its own set of tax laws and regulations. As a taxpayer, it’s crucial to understand your state’s tax requirements to avoid unexpected tax liabilities.

Reasons for Owing State Taxes

There are several reasons why you may owe state taxes this year, even if you didn’t in the past. These reasons include:

• Changes in Income: If your income has increased, you may move into a higher tax bracket, resulting in a higher tax liability.
• Loss of Tax Credits or Deductions: If you previously qualified for certain tax credits or deductions that are no longer available to you, your tax liability may increase.
• Underpayment of Estimated Taxes: If you’re self-employed or have irregular income, you may need to make estimated tax payments throughout the year to avoid owing a large sum at tax time.
• Changes in Withholding: If you changed jobs or had a reduction in your withholding, less tax may have been withheld from your paychecks, leading to a tax liability.
• Receiving Unemployment Benefits: Unemployment benefits are taxable income and can increase your overall tax liability.
• Differences Between State and Federal Tax Laws: State tax laws can differ significantly from federal tax laws, resulting in different tax liabilities even if your federal tax situation remains the same.
• Multiple State Income: If you work or earn income in multiple states, you may be required to file tax returns in each state, potentially leading to multiple tax liabilities.

Why Do I Owe So Much in State Taxes?

In addition to the reasons mentioned above, there are other factors that could contribute to a higher state tax liability:

• Social Security Benefits: If you’re receiving Social Security benefits for the first time, they may be subject to state income tax.
• Increase in Taxable Income: If you didn’t contribute to an individual retirement account (IRA) or other tax-advantaged savings plan, your taxable income may increase.
• Changes in Filing Status: Getting married, divorced, or having a child can affect your tax filing status and potentially increase your tax liability.
• Increase in Home or Property Tax: If your home or property taxes have increased, it can reduce your available income and increase your tax liability.
• One-Off Capital Gains: If you sold stocks, real estate, or other assets at a profit, you may owe capital gains tax, which can increase your overall tax liability.

Understanding State Tax Due

If you owe state taxes, you will receive a notice from the state tax agency. This notice will indicate the amount of tax due and the deadline for payment. It’s important to respond promptly to avoid penalties and interest charges.

Consequences of Not Paying State Taxes

Failure to pay your state taxes can result in serious consequences, including:

• Penalties and Interest: The state can impose penalties and interest on unpaid taxes, which can significantly increase your overall tax liability.
• Wage Garnishment: The state can garnish your wages to collect unpaid taxes.
• Liens and Levies: The state can place a lien on your property or levy your bank accounts to collect unpaid taxes.
• Criminal Charges: In severe cases, the state can file criminal charges for tax evasion.

Seeking Professional Help

If you’re struggling to understand your state tax obligations or are facing a tax liability you can’t afford, it’s advisable to seek professional help from a tax attorney or accountant. These professionals can provide guidance on your tax situation, help you negotiate with the state tax agency, and represent you in tax disputes.