Tax season is a nerve-racking time for millions of Americans. Even those who prepare a return honestly can’t help but fear that one small miscalculation or slip-up will cause the IRS to come calling.
In addition, virtually every American experienced changes to their income or financial circumstances last year due to realities like inflation. Those changes have left them worried about their tax obligations.
Recently, Adobe surveyed more than 1,000 Americans and asked them about the life changes that are causing them the most angst when it comes to their taxes.
Here are the life changes that are triggering the most anxiety for Americans — and why such fears may be misplaced.
5. Student loan repayment
Survey respondents who cited this among the life changes that they are most concerned about affecting their taxes: 19%
Millions of Americans struggle to pay their student loan debt, which now tops $1.7 trillion nationwide, according to the Federal Reserve.
However, there’s nothing to worry about here when it comes to taxes. In fact, there is good news tied to student loan repayment: The interest you paid during the year is deductible in an amount up to $2,500 on your federal tax return.
Just keep in mind that the deduction might be reduced — or eliminated — if your income is high.
4. High inflation
Survey respondents who cited this among the life changes that they are most concerned about affecting their taxes: 21%
For the most part, inflation does not necessarily have a direct effect on your taxes. It does erode the value of tax breaks that are not regularly adjusted to account for inflation, as we detail in “Stealth Tax Hikes: 7 Ways Inflation Dings Your Deductions.”
mBut aside from those tax breaks, you won’t feel the pinch of inflation when you file your return.
3. Higher interest rates
Survey respondents who cited this among the life changes that they are most concerned about affecting their taxes: 22%
As interest rates climbed in recent years, savers have started to generate bigger returns on the cash they keep in savings accounts and certificates of deposit (CDs). Even though these interest rates started to fall in 2024, it’s still likely you are earning more money on your savings than you did in the recent past.
This fact can indeed mean a higher tax bill. However, most of us would likely agree that this is a nice problem to have, especially after more than a decade of paltry returns in savings accounts.
While the higher interest rates of recent years have been a boon for savers, they have made borrowing more expensive. If you owe interest on certain types of borrowing — such as student loans or a mortgage — it’s possible you will qualify for a deduction. But beyond that, higher interest rates years shouldn’t affect your taxes.
2. Salary increase
Survey respondents who cited this among the life changes that they are most concerned about affecting their taxes: 23%
A minor bump up in your salary likely won’t impact your taxes. That is because the IRS regularly increases tax brackets — the income ranges that determine the highest tax rate you pay — to account for inflation.
On the other hand, if you get a new job or a big raise at your current job that provides you with a large salary jump, it could push you into a higher tax bracket. That could increase your tax rate and thus increase the taxes you owe. However, because the U.S. tax code uses marginal tax rates, you’ll only pay that higher tax rate on a relatively small percentage of your income. Once again, this is a “problem” that many of us would love to have.
1. Taxation of payment platforms
Survey respondents who cited this among the life changes that they are most concerned about affecting their taxes: 30%
For some gig workers and others with side hustles, there is one big change that could indeed raise their tax bill, possibly in a significant way.
A federal law known as the American Rescue Plan Act of 2021 required companies such as Uber and Etsy to report the money that people earn through these platforms to the IRS if the worker earns more than $600 during a calendar year. This also applies to income received through payment services such as PayPal and Venmo. Previously, that threshold was $20,000 annually.
For a couple of years, the IRS postponed this change rather than enforcing it. However, the IRS recently announced plans to gradually decrease the threshold and enforce the rule, starting with the 2024 tax year. The IRS will require e-commerce and payment platforms to report workers’ incomes (which they do by issuing a Form 1099-K) that are more than:
- $5,000 in 2024
- $2,500 in 2025
- $600 in 2026 and after
This will likely be a big change for millions of taxpayers. But in truth, it shouldn’t be.
The IRS long has expected you to report self-employment income that reaches $400 — regardless of whether a company issued you a Form 1099-K — as we detail in “6 Things Every Self-Employed and Gig Worker Ought to Know About Taxes.”
So, in effect, the change to the 1099-K threshold doesn’t actually alter anything about your income taxes. Now that the IRS is enforcing its rules, there is a greater danger that folks who don’t pay taxes on this type of income will get into trouble. However, they should have been paying taxes on the income all along.
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