These 5 Things You Don’t Know About Taxes Could Literally Cost You
You’ve gotten pretty knowledgeable about paying your taxes every year. At least, you’d like to think so. But there are always some things you don’t know. And what you don’t know could cost you a lot of money in penalties, fees, interest and missed savings opportunities.
MoneyLion is here to educate you — and help you save some money, too. We connected with experts who offered a tax tutorial, filling in the gaps in your knowledge while helping you hold on to your money.
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1. The IRS Already Knows Your Income Before You File
If hearing that the IRS already knows what you’ve made this year — even before you file your taxes — makes you do a double take, Brennan Kolar, founder of Atlas CPA Index, understands your confusion. He calls this knowledge “the most surprising thing” most people don’t know about their taxes.
Your employers, banks, brokerages and payment platforms all send Uncle Sam copies of your tax forms. After you file your return, the IRS runs an automated matching system against those documents. If something doesn’t match, the system flags it.
“Filing your taxes is essentially a confirmation process, not a reporting process. They should call it confirming your taxes instead of reporting your taxes,” he said.
Even if chasing forms and maintaining accurate documentation is time-consuming, you’ve still got to do it. If your income doesn’t align with what the IRS has on file, you could be looking at additional emotional — and financial — stress in the form of IRS notices and a potential bill for additional tax, penalties and interest.
2. A Big Refund Isn’t the Win You Think It Is
One upside of tax season is that juicy refund that lands in your bank account. You think about all the good you can do with that money, from padding your emergency fund to investing. But what if you could have been doing those things all along?
As Elisabella Ricca, a consumer analyst at TopCashback, explains, a large refund isn’t such a good thing. Many people don’t realize it means you’ve overpaid throughout the year — essentially giving the government an interest-free loan.
“The refund is simply a reimbursement,” she said. “The goal isn’t to get the largest number possible, but instead to get as close to zero as possible.”
Adjusting your withholding so you get closer to zero means you’re keeping more of your money throughout the year.
3. There’s a New Deduction for Tips and Overtime
Did you know that the One Big Beautiful Bill Act (OBBBA) created a new deduction for tips and overtime? If you didn’t, Kolar says you’re not alone: Many workers don’t know about it yet — and what they don’t know can hurt their wallets.
“If you earn tips and your income is under $150,000, you can deduct up to $25,000 in tip income on your 2025 return,” he said. “Overtime pay also qualifies for an annual deduction of up to $12,500, though that only applies to the premium portion of overtime as defined by the Fair Labor Standards Act.”
Since these deductions are brand new for the 2025 filing year, Kolar worries that eligible taxpayers won’t maximize potential benefits. Don’t be among them.
4. The 1099 Reporting Threshold Has Changed
Another big change related to OBBBA that many people might not be aware of involves the 1099 reporting threshold, Kolar said.
“Starting in 2026, the threshold for receiving a 1099-MISC or 1099-NEC went from $600 to $2,000,” he said. “The 1099-K threshold for payment platforms went back up to $20,000 and 200 transactions.”
Still, he says people get certain things about this wrong — notably, that the reporting threshold is not a tax threshold.
“Under IRC Section 1402(a), anyone with $400 or more in net self-employment income still owes self-employment tax whether they receive a 1099 or not,” he said. “The form is for the IRS’s records. Your obligation exists regardless of whether you get the paperwork.”
Not fulfilling that obligation can cost you, thanks to fees and penalties.
5. You Must Report All Income, Even if You Think It’s ‘Too Small’
Surely, that money you earned from your summer side hustle can’t be of interest to the IRS. Ricca is sorry to inform you that, yes, it is. You must report all income, even if it’s considered a small amount.
“Common examples of side income include rideshare or delivery services, selling goods online and freelance work,” she said. “If you don’t report this income, the IRS may flag discrepancies, which can lead to penalties and interest.”
The Bottom Line
What you don’t know really can hurt you when it comes to your taxes. Being aware of major changes to the tax code is a good start. So is adopting common-sense practices, like reporting all your income and adjusting your withholding to hold on to more of your money throughout the year. Not taking these steps could mean owing interest, fees and penalties.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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