More people than ever owe money to the IRS - why Americans who are used to getting a refund in April are in for a shock

Some 18.6 million taxpayers owe $316 billion in overdue taxes, up from 16.8 million owing $308 billion in September 2019Many taxpayers got used to special tax breaks during the pandemic and are now finding their bills much bigger The IRS last month announced it would scrap $1 billion in penalties

America’s tax debts are spiraling after the IRS put a halt to chasing payments during the pandemic.

Some 18.6 million taxpayers owed the IRS $316 billion in overdue taxes at the end of 2022, up from 16.8 million owing $308 billion in September 2019. And the figures are only set to grow this year.

Experts are warning that workers who have been used to getting refunds in the last few years can swing into money owed for 2024.

The trend has been fueled by the end of pandemic tax relief and also a booming stock market which puts more investors at risk of hefty Capital Gains Tax bills. The S&P 500 is currently up 22.1 percent while Bitcoin grew 155 percent in 2023.

Florida financial advisor Paxton Driscoll told DailyMail.com: ‘People should definitely be aware their tax return is not going to be as great this year as they don’t have the advantage of the Covid relief programs.

The number of taxpayers who owe money to the IRS is ballooning after the agency paused many collection efforts during the pandemic

The number of taxpayers who owe money to the IRS is ballooning after the agency paused many collection efforts during the pandemic

Florida financial advisor Paxton Driscoll told DailyMail.com: 'People should definitely be aware their tax return is not going to be as great this year as they don't have the advantage of the Covid relief programs'

Florida financial advisor Paxton Driscoll told DailyMail.com: ‘People should definitely be aware their tax return is not going to be as great this year as they don’t have the advantage of the Covid relief programs’

‘But also their investments could land them with a bigger bill. A lot of millennials use investment apps like Robinhood and own tech stocks such as Google and Amazon which had a really great year.

‘It means a lot of people could be liable for Capital Gains Tax they had no idea about.’

Capital Gains Tax is the levy investors pay on the profit they make from an investment after selling it. But for the 2023 tax year, it only applies to those whose profits exceed $44,625.

Many taxpayers benefited from temporary relief measures brought in during the pandemic. For example, the child tax credit was raised to $3,600 per child in 2021 before dropping back down to $2,000 last year.

As most initiatives have since expired, those that are used to getting refunds may in fact find they have balances due.

IRS data shows that, by the end of 2022, some 3.2 million Americans owed less than $500 while 1.8 million owed between $500 to $999.

A staggering 6.3 million were in debts of between $1,000 and $4,999 while 2.7 million owed between $5,000 and $9,999. A further 4.5 million people are $10,000 or more in arrears.

Examples of those who are behind on their taxes include a medical doctor who hasn’t filed a tax return since 2019 and owes $1 million, according to the National Association of Enrolled agents.

But there are many reasons workers can end up in debt. For example, those with a steady paycheck get their taxes withheld each month.

However, there is no guarantee this withholding amount is enough meaning they might be landed with an unexpected bill at the end of the year.

In a bid to claw back debts, the IRS has waived penalty fees for Americans who underpaid taxes in 2020 and 2021

In a bid to claw back debts, the IRS has waived penalty fees for Americans who underpaid taxes in 2020 and 2021

IRS Commissioner Danny Werfel, pictured, told reporters: 'People need to know the IRS is on their side'

IRS Commissioner Danny Werfel, pictured, told reporters: ‘People need to know the IRS is on their side’

The issue is also compounded by the rise of the gig worker economy fueled by freelance working apps such as Uber, DoorDash and Instacart.

Gig workers must pay taxes during the year in quarterly estimates but if these estimates are wrong they can get a surprise balance at the end of the year.

In a bid to claw back debts, the IRS has waived penalty fees for Americans who underpaid taxes in 2020 and 2021.

Last month the agency said around 4.6 million people, businesses and tax-exempt organizations – most making under $400,000 per year – would be eligible for the relief. They must owe less than $100,000 in tax for the two years.

The olive branch is intended to reduce the IRS’ backlog after it suspended sending out collection letters in February 2022 as a one-time relief package during lockdown.

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