When you file your tax return, there’s always the chance that you might owe money back to the state because of various taxes and fees.
So, why do I owe state taxes? There are several different reasons why this could happen to you, depending on where you live, your marital status, and whether or not you have children, among other things.
Keep reading to learn more about the top three reasons you might be required to pay state taxes and what you can do about it if any of these apply to you.
The Definition of Taxable Income
Taxable income, which is any income earned through work or investments, is reported on Form 1040. If your income exceeds certain levels based on your filing status, you will have to pay federal and potentially state income tax.
Both are due by April 15 each year in conjunction with filing a return with either the Internal Revenue Service (IRS) or a State Department of Revenue (SDOR).
The Importance of Knowing Who You Owe Taxes To
Each year, millions of people needlessly stress about their federal income tax return but aren’t even aware that they may also have to file a separate state income tax return.
It’s not uncommon for many Americans to find out after filing their federal returns that they still owe money because they were unaware of their obligation to file a separate state return as well.
It is often due to two main factors:
1) People’s realization
People don’t realize they live in a state with an income tax.
2) Some states don’t require filing
Many states don’t require residents to file until they earn enough money during the year.
So what are some of these low-income threshold states?
They include Alaska, Florida, Nevada, New Hampshire, and South Dakota. If you live in one of these states or another with a relatively low minimum income requirement, make sure you know your needs before filing your federal return to avoid any unnecessary stress later on.
If you happen to fall into one of these categories, here’s how much money you should make before having to worry about paying state taxes:
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The Top Three Reasons You Might Owe State Taxes
If you live in certain states, you may owe taxes to your state government, even if you don’t owe federal income taxes or state income taxes in any other state. Why might this be? What are the top three reasons people might owe state taxes? Find out below!
Reason #1: Not Reporting All Income
There are a lot of reasons why people don’t report all their income on their tax returns. Some forget about it, some don’t realize they’re required to do so, and others may not know what they qualify as taxable income.
Whatever your reason is, you should know that if you didn’t report all your income and did receive benefits from another state, you could be subject to paying back taxes in addition to fines and penalties.
Reason #2: Claiming An Exemption You Are Not Entitled To
If you earned income from a job, either in your home state or while temporarily working out of state, there is a good chance that some of it was taxed by your state. If you are unable to claim exemptions for all of your dependents, you might owe tax even if you did not work in that particular state.
Often, people will claim exemptions for their children when they do not actually qualify, either because those children do not live with them or do not meet certain age and dependency status requirements.
Reason #3: Not Filing On Time
Some states don’t accept your federal taxes as filed. If you live in one of these states, or even if you lived in one of these states during a past tax year and weren’t up-to-date on your filings, then there’s a chance you owe state taxes.
The best way to avoid owing money to your state is to make sure you file all required returns by their due dates (including extensions).