Why millions are getting surprise tax bills — The ‘underestimating’ mistake IRS is flagging

As the April 15 deadline for new IRA rules looms, people are cramming to file their 2025 tax returns before the April 15 deadline, unless they got extra time. The new rules might make it more confusing, say tax hawks, could see people miss tax savings, get a bigger tax bill, or face IRS checks. Tax season started on January 26, and experts say this year is very different from past years.

President Donald Trump’s “One Big Beautiful Bill Act” introduced new tax credits and deductions that are confusing many taxpayers, as reported by The U.S. Sun. These new rules could increase refunds for some people, but only if they understand and use them correctly. Other big changes include removing the IRS free Direct File system, adjusting tax brackets and standard deductions, and phasing out paper refund checks. Because of these changes, many Americans are misjudging how much tax they owe, tax experts said.

Biggest tax mistake people are making

Elizabeth Hale, founder and CEO of eeCPA, said the biggest mistake people are making is underestimating how much of their income is taxable. Hale explained that many people think if their income did not change much, their tax bill should stay the same, but that is no longer true. Taxable income is the part of your total earnings that the federal government taxes. Taxable income can include money, goods, property, or services, as outlined by The U.S. Sun.


Common taxable income sources include salaries, tips, bonuses, interest, dividends, business profits, and lottery winnings. Some income, like gifts, child support, and certain benefits, is not taxable. Taxable income is calculated by starting with everything you earned during the year, including side hustles and interest. Then, “above-the-line” deductions like IRA, 401(k), or HSA contributions are subtracted to reach adjusted gross income. After that, taxpayers subtract either the standard deduction or itemized deductions, whichever is higher.

Who must file taxes in 2025

After all the steps, the final amount is called taxable income. The IRS uses this number to decide how much tax you must pay. Taxable income is important because it decides your tax group and tax amount. Many Americans must file taxes if they earn more than a set limit. In 2025, single people must file if they earn over $15,750, or $17,550 if they are 65 or older. Married couples filing together must file if they earn over $31,500, with higher limits for seniors. Heads of household must file if they earn over $23,625, or $25,625 if they are 65 or older.

Self-employed people must file if they earn $400 or more, even if their total income is low. Hale said Americans have less flexibility than they think because income now comes from many sources, including side hustles and bonuses. Money earned from savings accounts, CDs, and investments is also taxable. Income from online platforms like Fiverr, Amazon, Etsy, YouTube, TikTok, and eBay must be reported to the IRS. Whether this income is self-employment income or extra wages, it is still taxable, tax experts said.

Why surprise tax bills happen

Many people wrongly believe small or cash-based payments will not be noticed by the IRS, said J. Anton Collins, a former IRS auditor. Collins said he has seen many taxpayers shocked by IRS notices for income they did not realize was reported, he told The U.S. Sun. Hale said many clients face “surprise balances” because they did not plan early for how extra income would be taxed.

Some income, like side hustles and investment earnings, does not have taxes withheld automatically, unlike regular jobs. Because of this, people often discover they owe money only after finishing their tax return. Extra income can also push someone into a higher tax bracket, increasing the total tax owed. Self-employed income can also trigger self-employment tax for Social Security and Medicare. If someone owes $1,000 or more in unpaid taxes, the IRS may charge a penalty for underpaying during the year.

Collins warned that penalties and interest grow when forgotten income is later found by the IRS. Hale said it is often too late to fix mistakes when filing time arrives because the tax year has already ended. She explained that Americans cannot go back and change withholdings or make last-minute business moves after December 31. However, people can still lower taxable income by contributing to a traditional IRA or HSA before April 15.

Self-employed workers can also contribute to a SEP IRA by the filing deadline, or by October 15 if they file an extension. Many people struggle to pay surprise tax bills because they already spent their side income, according to The U.S. Sun. Collins advised taxpayers to check every payment record early and assume all platform income is reported to the IRS. Experts say better planning and awareness during the year is the only real way to avoid surprise tax bills in the future.

FAQs

Q1: Why are people getting surprise tax bills in 2025?

Many people are not counting all their taxable income, especially money from side jobs, online work, or investments.

Q2: What income does the IRS track the most now?

The IRS tracks side hustle income, online platform payments, interest, and investment earnings more closely.