Yes, it's possible to owe taxes instead of getting a refund
A tax refund is not automatic. You get a refund only when you have paid more in taxes during the year than you actually owe. If you paid less than you owe, you will owe money to the IRS instead of receiving a refund. If you paid exactly what you owe, you break even and receive neither a refund nor a bill.
The amount you pay in taxes comes from two sources: withholding from your paychecks (if you are an employee) and estimated tax payments (if you are self-employed or have income the IRS does not automatically withhold from). The amount you owe depends on your total income, filing status, deductions, and credits. The difference between what you paid and what you owe determines whether you get money back, owe money, or break even.
Key Takeaways
- You receive a refund only when your total tax payments exceed what you actually owe for the year.
- If you did not have enough withheld from paychecks or did not make estimated payments, you may owe the IRS instead.
- Self-employed people and those with investment income are more likely to owe taxes because withholding does not happen automatically.
- You can adjust your withholding mid-year by filing a new W-4 with your employer to avoid owing money at tax time.
- If you owe taxes, you can pay in full, set up a payment plan, or request a short-term extension to pay.
How withholding and estimated payments determine your refund
When you work as an employee, your employer withholds federal income tax from each paycheck based on the W-4 form you fill out. The W-4 tells your employer how much to withhold — the more dependents or adjustments you claim, the less is withheld. If you claim too many adjustments, not enough money is withheld, and you will owe at tax time.
Self-employed people do not have an employer withholding taxes, so they must send estimated tax payments to the IRS four times a year (April 15, June 15, September 15, and January 15). These payments are based on the income you expect to earn. If you underestimate your income or forget to make a payment, you will owe when you file.
People with investment income, rental income, or side income from a business may also face the same problem: if the income source does not automatically withhold taxes, you need to either have extra withheld from another job or make estimated payments yourself.
Situations where you are more likely to owe instead of getting a refund
You are more likely to owe taxes if you are self-employed, have a second job, received a large bonus, sold an investment at a profit, or had a major life change like marriage or divorce that you did not adjust your W-4 for. Freelancers, contractors, and gig workers almost always owe because their income is not subject to withholding.
You may also owe if you claimed too many dependents on your W-4 to reduce withholding, or if you received unemployment benefits during the year and did not have taxes withheld from them. Some people deliberately under-withhold to get a larger paycheck each month, knowing they will owe at tax time — this is a choice, not a mistake.
Retirees who withdraw money from retirement accounts before age 59½ may owe taxes plus penalties. People who received a large inheritance or settled a lawsuit may also face an unexpected tax bill if they did not plan for it.
What happens if you owe taxes instead of receiving a refund
When you file your tax return, the IRS will calculate how much you owe. You have until the tax deadline (usually April 15) to pay. If you cannot pay the full amount, you have three main options: pay what you can now and set up a payment plan for the rest, request a short-term extension to pay (not an extension to file), or request Currently Not Collectible status if you are facing financial hardship.
If you do not pay by the deadline, the IRS will charge you interest and penalties. The failure-to-pay penalty is typically 0.5% of the unpaid tax per month, and interest compounds daily. A payment plan stops the failure-to-pay penalty from growing as long as you make your payments on time.
You can set up a payment plan through the IRS website (IRS.gov), by phone at 1-800-829-1040, or through a tax professional. Short-term extensions (120 days) are free; longer payment plans may have a setup fee of $31 to $225 depending on how you set it up.
How to adjust your withholding to avoid owing next year
If you owed taxes this year and want to avoid owing next year, you can adjust your W-4 mid-year. File a new W-4 with your employer's payroll department — you do not need to wait until January. The new withholding takes effect on your next paycheck.
Use the IRS W-4 calculator on IRS.gov to determine how many dependents or adjustments to claim. The calculator asks about your income, filing status, and other jobs to estimate the right withholding. If you are married and both spouses work, the calculator helps you coordinate withholding between both jobs so neither of you over- or under-withholds.
If you are self-employed, you can increase your estimated tax payments for the remaining quarters of the year. If you made a mistake in your estimated payments, you can adjust them going forward without penalty.
The difference between owing taxes and a refund delay
Do not confuse owing taxes with a delayed refund. If you are owed a refund but the IRS has not sent it yet, that is a processing delay, not a tax bill. Refunds typically arrive within 21 days of the IRS accepting your return, though some take longer if the return is flagged for review or if you claimed certain credits.
You can check the status of a refund using the IRS "Where's My Refund?" tool on IRS.gov or by calling 1-800-829-1040. If your refund is delayed beyond 21 days, the tool will tell you why and what to do next. If you owe taxes, the IRS will send you a bill in the mail with instructions on how to pay.
Frequently Asked Questions
Can I file my taxes even if I know I will owe money?
Yes, you must file even if you owe. Filing late incurs a failure-to-file penalty (typically 5% per month) on top of the tax you owe, plus interest. It is always better to file on time and set up a payment plan than to skip filing.
What if I owe a small amount — do I still have to pay?
Yes, any amount owed is legally due. However, if you owe less than $1, the IRS typically does not pursue collection. If you owe between $1 and $25, you can usually pay online or by mail without setting up a formal payment plan.
Will owing taxes affect my credit score?
A tax debt itself does not appear on your credit report. However, if the IRS places a tax lien on your property (which happens only after repeated non-payment and formal notice), that lien will appear on your credit report and harm your score.
Can I get an extension to file if I know I will owe?
Filing an extension gives you until October 15 to file, but it does not extend the payment deadline — taxes are still due April 15. If you owe, you should pay by April 15 even if you have not filed yet, to avoid penalties. You can file the actual return later under the extension.
What if I owe because of a mistake on my return?
If the IRS finds an error on your return that results in you owing more, they will send you a notice explaining the change and how much you owe. You have the right to dispute the change by responding to the notice within the deadline given. If you agree, you can pay or set up a payment plan.