Internal Revenue Service penalties for underpayment of taxes have nearly tripled since 2021, putting gig economy workers and consultants at the greatest risk of having to pay a lot of money to Uncle Sam.
Starting Oct. 1, the IRS will now charge 8% interest on estimated underpayments of taxes, up from 3% two years ago, according to The Wall Street Journal.
The penalty largely applies to pay-as-you-go employees who have no taxes withheld and fail to make estimated quarterly payments before filing their taxes in April.
Employees who have tax withheld will still be subject to new, higher penalties if they don’t calculate and pay tax accurately on any additional income, as will people who earn higher-than-expected dividend payments.
Karla Dennis, a registered agent in La Palma, Calif., said taxpayers who change their holdings to get more weekly cash can also run into trouble.
Since 2021, the penalty for underpayment of tax has tripled. Getty Images
“It’s a lingering problem: getting them on a payment plan, setting up a budget so they don’t end up in that situation again,” he said.
The increased penalties come after the IRS collected $1.8 billion in underpayment penalties from about 12.2 million Americans in fiscal year 2022, the newspaper reported.
Penalties can be avoided by paying at least 90% of one’s tax bill before filing, or having a difference of less than $1,000 — whichever amount is higher, according to the IRS.
One can avoid penalties by paying at least 90% of their tax bill before filing. Getty Images
Filers who paid 100% of the previous year’s tax bill will also be spared — a figure that rises to 110% for those earning more than $150,000 or married taxpayers who file separately and earn at least $75,000.
“It is a cautionary tale for individuals to think about as we approach the end of the year. Are you where you should be?” Joseph Doerrer, CPA and certified financial planner at CPA Mezzasalma in Tinton Falls, NJ, told the Journal.
Sameet Durg, a Warren, NJ, marketing executive, learned about fines the hard way after owing a four-figure underpayment penalty on top of an already large tax bill because he failed to make any payment estimates.
“Now I pay attention to taxes throughout the year. I don’t want that giant attack in April,” Durg, Doerrer’s client, told the newspaper.
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Source: thtrangdai.edu.vn/en/
