Underpaid Your Taxes? Here’s How Much the IRS Will Penalize You
Written by
Adam Palasciano
Edited by
T. Woods
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Paying taxes is a part of life. Whether you work part-time, full-time or earn an income of any kind, we’re all obligated to file and pay our taxes each year. Your overall income tax liability varies based on your income tax bracket and where you live. However, federal income taxes are due no matter where you live in the U.S.
If you’re an employee, then you’re probably paid biweekly or bimonthly on a W-2. This means that your taxes are automatically withheld throughout the year. However, freelancers are typically paid as contractors on a 1099. This means that you receive your total gross pay with no taxes withheld upfront. GOBankingRates explained that about 50% of the U.S. has at least one side gig. In fact, upward of 62% of people earning $100,000 or more reported having some kind of additional income beyond their main job.
If you’re a part of the 50%, you’ll want to make sure you’re making your quarterly tax payments on time to avoid IRS penalties, which just got a whole lot more expensive.
IRS Hikes Fees For Tax Underpayments
According to the Wall Street Journal, as of October 1, 2023, the IRS is charging 8% interest on estimated tax underpayments. That’s up from 3% just two years ago. The increase is one of the many effects of rising interest rates.
Still, the IRS assessed more than $1.8 billion in penalties for underpaying estimated taxes on nearly 12.2 million individual returns in fiscal year 2022 alone.
Gig workers, freelancers, and those who are self-employed should be aware of the 5% increase since this change could affect them the most come Tax Day.
Ontime IRS Tax Payments Are Crucial
Making on-time tax quarterly payments to the IRS can save you money and help you avoid financial trouble. The easiest way to make payments is online through the IRS website.
It’s worth noting that failure to pay all of your tax bills on time can lead to the worst-case scenario: IRS liens and levies against your finances.
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