W-2

Why do I owe taxes? I'm a W-2 employee

Your employer withheld all year and you still owe. Usually it's your bonus, your RSUs, or two incomes. Here's which one, what it costs, and how to stop it next year.

Updated October 2026 · 6 min read

You're a W-2 employee. Taxes come out of every paycheck. And you still owe the IRS thousands. That feels like a mistake, but usually it isn't. Withholding is your employer's estimate, and the estimate has a few well-known blind spots. Find yours and you can fix it in ten minutes.

Withholding is a guess, not a bill

Your employer doesn't know your whole year. It doesn't know about your spouse's job, your stock sales, or your bonus until the bonus happens. It withholds as if each paycheck were the only thing going on. When your real year looks different, the guess comes up short, and April settles the difference.

Cause 1: your bonus or RSUs were withheld at 22%

Bonuses, commissions, and RSU vests count as supplemental wages, and most employers withhold federal tax on them at a flat 22%. If you're single with $240,000 of wages, most of a $40,000 bonus lands in the 32% bracket for 2025 (the rest at 24%). Withheld at 22%, that bonus comes up about $3,000 short, and it shows up as a balance due.

RSUs make it bigger, because a vest can be a large number in one paycheck and nobody asks you about it first.

Cause 2: two incomes, each withheld as if it's the only one

When both spouses work, each employer gives you the low brackets and the standard deduction. Your joint return only gets them once. The fix is on Form W-4: check the box in Step 2 on both jobs, or use the IRS Tax Withholding Estimator to add a fixed extra amount on one of them.

Cause 3: the taxes nobody withholds

• –Additional Medicare Tax, 0.9% on wages over $250,000 married filing jointly ($200,000 single). Your employer only withholds it once your own wages there pass $200,000, so two $150,000 earners owe about $450 with nothing withheld.
• –Net Investment Income Tax, 3.8% on investment income above the same lines. Stock sales, dividends, and interest have no withholding at all.
• –Side income. A 1099 from consulting or a rental has no withholding either.

How to stop owing next year

1. 01Find your cause. Compare last year's total tax (Form 1040, line 24) with what was withheld (line 25d). The gap is your number.
2. 02Fix the W-4. Run the IRS Tax Withholding Estimator with a recent pay stub, then give your employer the new W-4. Ask for extra withholding on bonuses if your payroll allows it.
3. 03Or pay quarterly. If your income is over $150,000, paying in 110% of last year's tax through withholding and estimated payments keeps you out of underpayment penalties.