I'm Going to Owe the IRS Money Again in 2024. Here's Why I'm Thrilled That's the Case

In most years, I owe the IRS money when I file my taxes. This puts me in the minority, as most Americans get a refund.

It may not sound like a good thing to have to send the IRS money every year out of my checking account. But, the reality is, I'm very glad that I owe money for two key reasons. Here's what they are.

1. I owe more because I earned more

There's one big reason why I'm really glad that I owe the IRS more money for the 2023 tax year. My income went up. The more money you make, the more you're taxed both because your tax bracket can climb higher as your income grows and because you are taxed on a percentage of what you make.

While it's not super fun having to give the IRS a cut of my extra income, I do get to keep most of it. So, I'm happy to have a higher income that I'll be taxed on, even though that does mean a bigger IRS bill.

If your income has gone up and you're a freelancer like me who pays estimated taxes, you probably know that you're responsible for paying in money to the IRS quarterly each year -- and your estimated tax payments are often based on your prior year's earnings. So, if your income does increase, be sure you're setting aside some extra funds when tax day comes so you're ready to send the money to the IRS.

For me personally, as soon as I realized I was going to earn more this year, I started setting aside extra savings to make sure I'd have enough to pay all that I owe to the IRS.

2. I pay the minimum needed to avoid penalties so I don't give the IRS an interest-free loan

I'm also very glad that I'll owe the IRS money because it means I didn't give the government an interest-free loan. When you get a tax refund, you're just getting back your own money you overpaid. And you don't get any interest paid to you in return.

If you'd kept the extra money from your refund instead and just paid the minimum you need to avoid tax penalties, you could have done other things with it -- like investing it and paying down debt. Let's say you overpaid the IRS by $100 per month and you don't get your tax refund until April. That's about 16 months you could have been earning interest on all that money. You'd have missed out on around $52 in interest you could have earned if you kept the money in a savings account paying you 4.00% annually.

If you're getting a refund this year and you don't want to do that next year because you'd prefer to keep your funds until you're actually required to send them in, it's an easy fix. You can adjust your withholdings with your employer or change the amount you're sending in for your estimated taxes if you're self-employed. The IRS has a withholding estimator you can use to help you get the right amount that should be withheld from your taxes.

As you can see, there are good reasons to be glad to owe the IRS money. Start working to increase your income -- and adjust your withholding -- if you want to end up owing the IRS in the upcoming tax year like I do.