Washington DC, USA – June 3, 2016: Sign on corner of Internal Revenue Service Building in Washington DC showing side road construction and parked cars

As the April 15th tax deadline approaches, an increasing number of Americans find themselves with overdue taxes. According to the Internal Revenue Service (IRS), as of the end of 2022, 18.6 million taxpayers owed a staggering $316 billion in overdue taxes, up from 16.8 million people owing $308 billion in September 2019.

Why does tax debt continue to rise?

One contributing factor to this surge is that many Americans are accustomed to receiving refunds, and now instead face balances due. Another factor is the return to regular collection activities of the IRS after the halt during the pandemic, which delayed taxpayers’ ability to address and settle their debts.

C. Leachmoore, a certified IRS agent, recommends individuals facing tax debt to proactively resolve their issues before the IRS initiates any actions. The agency provides various relief programs for individuals with outstanding balances, emphasizing the importance of taking initiative before collection activities intensify.

You can check your eligibility for any of the relief programs here.

What’s the average amount of tax debt Americans owe? 

The amount of tax debt that people owe varies widely, ranging from under $1,000 to hundreds of thousands, or even over $1 million for some individuals. Examples from the National Association of Enrolled Agents include a doctor owing $1 million and a mortgage broker with a debt accumulated since 2013, anticipating the IRS to overlook it due to the passage of time. However, it’s crucial to remember that interest and penalties accumulate daily, causing the debt to grow significantly beyond its initial amount.

With the recent funding from the Inflation Reduction Act has empowered the IRS to target high-income individuals with outstanding taxes. Dozens of IRS workers are actively pursuing these cases, and already collected a total of $520 million.

How do people find themselves in tax debt?

There are two primary reasons why Americans find themselves with substantial tax debts. Firstly, employees with a consistent paycheck may have not enough taxes withheld, and are therefore caught off guard when tax season rolls around and they end up owing. Secondly, self-employed individuals who neglect their quarterly estimates may face unexpectedly higher tax liabilities.

What should you do if you owe?

Owing the IRS can turn into a nightmare, with added interest and penalties the debt keeps on growing. After the pandemic the IRS has picked up its usual collection efforts, sending out notices followed by more aggressive demands for payment.

Here is the bright side, more Americans are qualifying for relief this year due to the IRS waiving penalties for people that owe back taxes from 2020 and 2021. You can easily check if you qualify.

Tax liens and levies are the IRS’s strongest enforcement tools. These measures decreased due to resource limitations and the pandemic. Yet, with the funding from the Inflation Reduction Act, the IRS has hired more agents, causing an increase in enforcement that is expected to continue.