The States Where Tax Filers Are Paying the Highest Percentage of Their Income [2025]

Most free tax filing options are only available to taxpayers who earn below a certain income amount ($84,000 for the 2024 return). However, individuals with income over that limitation can still file for free using fillable forms.

Taxpayers who would benefit from tax advice in addition to filing their taxes would probably benefit from using a CPA. This would include taxpayers with sole-proprietorship income or partnership income, those who experience a life-changing event (i.e., getting married, purchasing a house, having a child, entering or exiting the military, etc.), and taxpayers who have had trouble with the IRS in the past, such as an outstanding audit or delinquent payments.

Most free filing services are offered through the IRS and state taxing authorities. Therefore, taxpayers must first determine their eligibility to see if a free filing option is available.

The three main IRS programs — Direct File, Free File, and the Voluntary Income Tax Assistance (VITA) program — have eligibility restrictions. For instance, Direct File is only available in 25 participating states, requires income below certain limits, and does not allow itemized deductions. VITA is generally limited to taxpayers earning less than $67,000, those over 60, or individuals with disabilities.

In general, taxpayers with relatively simple tax situations, such as W-2 employees with little to no investment or business income, benefit the most from free filing services, as these options are self-prepared.

However, taxpayers with more complex tax situations may benefit from using paid tax software or consulting a paid tax preparer, such as a CPA. More complex returns typically involve self-employed individuals, rental property owners, investors with significant capital gains, or those claiming multiple deductions and credits. Such taxpayers would benefit from consulting a CPA, who is better equipped to navigate complexities and maximize available tax benefits.

Additionally, those facing IRS audits, prior-year amendments, or multi-state filings will likely require professional assistance.

A significant portion of the U.S. population should consider using various free tax preparation software. However, as your financial picture becomes more complicated, you should consider hiring a professional.

Some scenarios that I believe complicate a return are:

1. Ownership in a business/receiving nonemployment compensation (reported on 1099-NEC or 1099-MISC)
2. Filing returns in multiple states
3. Owning rental property
4. Engaging in significant capital asset activity (selling various types of property, like collectibles, cars, houses, stock, virtual currency, etc.)

When a taxpayer falls behind on paying their federal income taxes, the IRS can charge interest and penalties and, in egregious cases, garnish a taxpayer's wages or retain their tax refund to offset the taxes owed.

If a taxpayer only receives income from an employer, and they properly complete their W4 form, they should not have their taxes under-withheld. This scenario is more common for sole proprietors or independent contractors (1099 employees) who must independently remit their income taxes to the IRS.

Falling behind on taxes exposes taxpayers to several risks. First, penalties and interest can accumulate quickly. The IRS imposes penalties for failure to file and failure to pay, both of which can significantly increase the amount owed. Second, the IRS has various collection methods at its disposal. Continued nonpayment can result in tax liens, wage garnishment, or even asset levies.

The best way to avoid IRS issues is to stay proactive. Do not ignore any tax problems. The IRS offers assistance programs to help taxpayers manage their obligations. Always file your return on time, and if you cannot pay the full amount owed, contact the IRS. They can often set up a payment plan to help you satisfy your tax obligations.

There are two main risks of falling behind on filing your returns. First, you may miss out on amounts due to you. Most Americans do not owe additional money when filing their taxes but are entitled to refunds. However, to receive that money, you must file.

Second, you may accumulate large balances owed to the federal government. All amounts due on a return are due by the return's original submission date (extensions do not change this date). If you have underpaid by this point, you will begin to accumulate penalties and interest on any balances owed. If you fail to pay, the IRS can freeze accounts and seek wage garnishments. You can set up payment plans with the IRS to avoid these extreme measures.

The 2024 tax regulations are very similar to the 2023 tax regulations, so there aren't many new deductions or credits for taxpayers to consider unless they had a life-changing event like getting married, purchasing a house, having a child, entering (or exiting) the military, etc. In those cases, doing some independent research or asking a tax professional for advice might help a taxpayer identify new deductions or credits that they may be eligible for.

If a taxpayer's situation remains unchanged from last year, they should expect to qualify for similar deductions and credits this filing season.

The primary annual change impacting all taxpayers is the indexing of certain deductions, credits, and thresholds to inflation. For instance, the standard deduction is higher in 2024 than it was in 2023. As a result, taxpayers who itemized in 2023 may find that claiming the standard deduction in 2024 provides a better tax outcome.

The key for any tax year is to focus on any new income streams or expenses incurred that may have tax implications. For example, if you purchased an electric vehicle in 2024, be sure to verify whether that purchase qualifies for the EV tax credit.

Otherwise, this filing season is largely the same as last year.

Since most people can only take a standard deduction, I encourage people to look into above-the-line deductions. These include common things like paying student interest, paying alimony, and contributing to an individual retirement or health savings account. For a complete list, go to IRS.gov and look at Part II of form "Schedule 1".