Guides · Tax mistakes
Common tax mistakes — and how to avoid them
US mistakes
Mistake: Never updating the W-4 after a raise
The default W-4 assumes a single filer with one job and no dependents. After a raise, that assumption no longer matches reality. Withholding falls behind the actual liability.
Fix: re-do the W-4 each January or whenever your situation changes. Use the IRS Tax Withholding Estimator.
Mistake: Forgetting state tax when computing "real" take-home
The calculator and many online estimates are federal-only. State tax is 0-13% on top, often ignored until year-end when the bill arrives.
Fix: include state withholding in your expectations. Run your state's withholding calculator and add the result to the federal piece.
Mistake: Withdrawing HSA money for non-medical expenses
An HSA can be used for any purpose after age 65, taxed as ordinary income. Before 65, non-medical withdrawals are taxed plus a 20% penalty. People sometimes treat HSAs as generic savings accounts and withdraw for non-medical reasons — costly mistake.
Fix: keep non-medical emergency savings in a regular savings account. Use HSA only for qualified medical expenses until age 65.
Mistake: Not making estimated tax payments on side income
W-2 withholding doesn't know about your freelance / 1099 income. Without quarterly estimated payments (Form 1040-ES), you owe at year-end plus an underpayment penalty.
Fix: set aside 25-30% of net freelance income for taxes; pay via Form 1040-ES in April, June, September, January.
Mistake: Filing married filing jointly when married filing separately would be better
MFJ is usually better for low- and middle-income couples. But for some scenarios — high medical expenses, large student loan payments, or specific phase-outs — married filing separately produces a lower combined tax.
Fix: run both filing statuses through tax software before submitting. The "Married Filing Separately" option is on the second screen of Form 1040.
Mistake: Forgetting to update the W-4 after marriage
A new marriage changes the filing-status assumption and (if the spouse works) requires the Step 2 checkbox. Without it, withholding is wrong from the first paycheck post-marriage.
Fix: submit a new W-4 to your employer in the month of the marriage.
Mistake: Skipping the EITC because you assume you don't qualify
The Earned Income Tax Credit has income limits well above the federal poverty line. Many eligible households skip claiming it because they assume it's for low-income families only.
Fix: check the IRS EITC Assistant; eligibility depends on income, filing status, and number of qualifying children. Tax software does this automatically.
Mistake: Missing the Saver's Credit for retirement contributions
The Saver's Credit (Form 8880) gives a 10-50% credit on the first $1,000-$2,000 of retirement contributions for lower-income filers. Many don't claim it because tax software sometimes requires manual selection.
Fix: make retirement contributions, then claim the credit on Form 8880 (often surfaced automatically by tax software).
UK mistakes
Mistake: Staying on emergency tax (BR or 0T) after a job change
A new employer often defaults to emergency tax until the new-starter checklist is completed with HMRC. If you don't submit the checklist, you over-withhold — sometimes for the entire tax year.
Fix: complete the new-starter checklist on day one. If you've been over-withholding, reclaim via your Personal Tax Account or Form P50.
Mistake: Not telling HMRC about a second job
Two jobs without a tax-code update means each employer applies the basic Personal Allowance. Your second income is taxed from pound one, leaving you with a refund at year-end — and a year of unnecessary over-withholding.
Fix: update your Personal Tax Account the day you start the second job. HMRC will issue a tax code for the second employment.
Mistake: Forgetting Self Assessment when starting self-employment
Self-employment income is not handled by PAYE. If you take on freelance work without registering for Self Assessment, you don't file, you don't pay, and HMRC catches up at some point — with interest.
Fix: register for Self Assessment by 5 October following the tax year in which you started self-employment.
Mistake: Missing the Marriage Allowance transfer
A basic-rate non-earner can transfer £1,260 of Personal Allowance to a higher-rate-earning spouse, saving £252 of tax. Many couples don't realise this exists.
Fix: the recipient applies via the HMRC Marriage Allowance service. Back-claims for up to 4 years are possible.
Mistake: Paying too little on account
Payments on account (31 January + 31 July) are estimates based on the prior year's bill. If your income has risen, the estimate is too low and you owe interest on the shortfall.
Fix: reduce payments on account via SA303 if income has dropped; or save more than the estimate and pay the difference at year-end.
Mistake: Missing gift-aid on charitable donations
Gift Aid adds 25p for every £1 donated (at the basic rate). Higher-rate donors can claim the difference via Self Assessment. Most UK charities will run gift-aid on your behalf if you sign a declaration.
Fix: tick the gift-aid box when donating, or sign a declaration with the charity. Keep records of total donations for the higher-rate claim.
Mistake: Forgetting to register for Child Benefit when one parent earns over £60k
If one parent earns over £60,000, the High Income Child Benefit Charge claws back the benefit via the tax return. Couples sometimes forgo Child Benefit entirely to avoid the charge — losing National Insurance credits for the lower-earning parent.
Fix: register for Child Benefit even if you owe the charge — the NI credits may be worth more than the charge itself, especially for state pension entitlement.
Cross-country mistakes
Mistake: Moving abroad and assuming the tax obligation disappears
US citizens owe US tax on worldwide income for life, regardless of where they live. UK non-domiciled residents still owe UK tax on UK-source income and remitted foreign income.
Fix: if you move abroad, file the relevant forms (US: Form 2350 for extension, FEIE for exclusion, FTC for credit; UK: tell HMRC your new address, deregister if appropriate, consider remittance basis).
Mistake: Ignoring foreign income in your home country's return
"I already paid tax in the country where I earned it" is not a defence against reporting it. Both the US and UK require worldwide income to be reported; the foreign tax credit or exemption applies later.
Fix: report all foreign income, then claim the credit (US Form 1116) or exemption (US FEIE) or remittance basis (UK). Don't skip the reporting step.
Mistake: Using the calculator output as the final tax bill
The calculator is a clean baseline. It does not know your filing status, dependents, state tax, pre-tax deductions, or credits. Treating the output as your final bill misses all of those.
Fix: use the calculator to understand the brackets; use tax software (or a qualified accountant) for the final bill.
How to catch them
- January reset. Re-do the W-4 / tax code each January, even if nothing changed. The defaults stop being accurate within a few years for most people.
- After every life change. Marriage, divorce, new child, new job, raise, second job, home purchase, inheritance — each is a tax-code / W-4 trigger.
- Year-end reconciliation. Don't ignore the tax return. If you got a $5,000 refund, your withholding was too high. If you owed $5,000, it was too low. Either way, fix for next year.
- Tax software preview in October. Most tax software lets you project the current year-end result from October onward. If it shows a balance due, you still have three months to top up withholding or take corrective action.
- Use the calculator as a sanity check. If the calculator shows $9,000 federal tax and tax software shows $4,500, the difference is your credits and deductions. If the calculator shows $9,000 and software shows $11,000, something is wrong — usually forgotten state tax, an outdated W-4, or a missed income source.