Title: IRS Increases Interest Penalty for Underpaying Taxes in Upcoming Filing Season
In a move that will impact self-employed workers and independent contractors, the Internal Revenue Service (IRS) has decided to increase the interest penalty on underpaid taxes for the next tax filing season. The penalty, previously at 3%, has been raised to a substantial 8% in an effort to ensure timely and accurate tax payments.
The interest penalty is determined on a quarterly basis and is calculated by adding the federal short-term rate and three percentage points for non-corporate taxpayers. This means that individuals who fail to pay the amount the IRS determines they owe, such as self-employed individuals and gig workers, may face significant penalties.
It is important to note that taxpayers who have a balance due of less than $1,000 after accounting for tax credits and other relevant factors will not be penalized for underpayment. However, those who do not have at least 90% of their taxes withheld during regular pay periods are required to make estimated tax payments at least once per quarter.
It is worth mentioning that these changes do not affect the majority of W-2 employees who already have tax payments withheld from their paychecks. The new penalty primarily targets individuals with irregular income or those who are not subject to traditional paycheck withholdings.
To help taxpayers calculate their withholding amount accurately, the IRS provides an online tool called the tax-withholding estimator. This tool requires information from the previous year’s tax return, pay stubs, and sources of taxable income. By utilizing this resource, individuals can avoid underpayment penalties and ensure their tax obligations are met throughout the year.
Experts strongly advise individuals, particularly those with fluctuating income, to pay close attention to their taxes throughout the year. Making estimated tax payments, even if they exceed the minimum requirement, can help minimize the risk of facing penalties when filing taxes.
As the tax filing season approaches, it is crucial for taxpayers to stay mindful of their obligations and strive to make accurate and timely payments. By staying informed and taking necessary measures, individuals can avoid unnecessary penalties and ensure a smooth tax filing process.