It’s bad news to hear: I thought I was going to receive IRS, but in the end I’m going to pay. Know that bills can change everything on your annual statement.
It’s the surprise that no one wants to have when the topic is IRS: you thought you would receive it, but you will pay it a significant amount of money to the State. Why?
A bad tax surprise can have several reasons, and they all have the same origin: poor knowledge of the tax system, the IRS Code and the rules that guide all the settling of accounts between taxpayers and the State.
First of all, know that it is not impossible for the State to make a mistake in the calculations and that this has already happened to many taxpayers. Even so, and before starting an unfounded claim, it is worth analyzing the different possible scenarios that lead you to have to pay the IRS when you thought you were going to receive a refund.
He thought he was going to receive it, but in the end he will pay it: the reasons for the surprise
The collection deductions
It is very common for taxpayers not to have an exact notion of what the collection deductions are and then have bad surprises when they receive the settlement note.
Collection deductions, and you must understand this very well, are amounts that the State deducts from your IRS payment and not amounts that the State pays you.
Simply put: the money from deductions is deducted from the money the taxpayer has to pay to the IRS. In case the taxpayer has nothing to pay, because he has already paid too much during the year, the discount gives a value to be received and that is why there is room for a refund.
Let’s imagine the case of a taxpayer who, accounting for last year, withheld at source 1000 euros less than he owed. At the end of the year, you present the IRS declaration and the Tax Authorities notice the discrepancy, so they will charge you those 1000 euros.
However, the same taxpayer got, we suppose, 500 euros of tax deductions. Now, before issuing the payment note, the Tax Authorities deduct the 500 euros of deductions from the amount originally owed, and the taxpayer now has to pay only 500 euros.
Now a different case: a taxpayer who withheld at source, last year, 1000 euros more than he owed. If you have the same 500 euros of tax deductions, this taxpayer will be entitled to a refund of 1500 euros – corresponding to the 1000 euros that you deducted in addition to the 500 euros of deductions.
In conclusion, it is important to realize that deductions are not money that you will receive, but rather an amount that is deducted from the amount of tax payable.
And if the result that the Finance Department determines is a negative amount greater than that of the deductions, you will have to pay the IRS instead of receiving a refund.
the green receipts
The law says that, as long as it does not exceed 12,500 euros in annual turnover, a self-employed worker benefits from optional withholding tax, that is, he only deducts the IRS amount from his receipts if he wants to.
This does not mean, however, that the value of green receipts is not taxed – and this is where the surprise of so many taxpayers who thought they were going to receive a refund and, after all, have a bill to pay to the State.
Income obtained from self-employment is also subject to the payment of IRS. Therefore, if you do not withhold tax at source, that is, if you choose not to deduct the IRS amount from the gross income of each receipt, you can be prepared to pay the IRS on the receipts all at once when you settle accounts. with the IRS.
If you choose to leave the IRS payment of green receipts until the end of the year, there may be less good surprises. Depending on the amount you have to settle, the bill to pay may be greater than the total collection deductions achieved – and, because of this, not only will you not receive a refund, but you will also have to pay a little more to the Tax Authorities.
The bad experience of thinking you were going to receive a refund from the IRS and, after all, having to pay usually results from the poor information you have as a taxpayer. If you don’t have the opportunity to study a little, you can at least keep this maxim in mind: with a few exceptions, no one is exempt from paying IRS and, if you don’t pay now, the bill will arrive later.
If you don’t want to have bad surprises, start paying taxes when they appear, to avoid accumulating expenses. It’s always better to overpay and then receive a bonus than to run away from spending and then receive a heavy bill in the mailbox.
For more IRS details, download our 2023 IRS Guide. It’s free:
IRS Guide 2023
After all, what is the IRS? How does this tax collection work? And what do you need to fill in the declaration? See the answers to this question in our IRS Guide.
Article originally published in July 2019. Last updated in April 2023.