Americans who fail to keep up with their tax payments may soon feel a sting in the pocketbook, thanks to the Internal Revenue Service (IRS).
According to the Wall Street Journal, the IRS is charging eight percent interest when it comes to estimated tax underpayments, noting the move went into effect October 1.
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Two years ago it was three percent, and “the increase is one of the many effects of rising interest rates,” the Journal article continued:
These higher penalties, which can run in the hundreds or even thousands of dollars, are particularly relevant for gig workers and consultants who don’t have taxes withheld and figure they can pay their taxes come April. People who get steady paychecks with tax withholding could also be affected if they have additional income and get the math wrong.
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To avoid underpayment penalties, most filers must pay 90% of their taxes through withholding during the calendar year, or through estimated payments due quarterly. The payment for the fourth quarter of 2023 comes due Jan. 16, 2024. The IRS won’t charge an underpayment penalty if the balance due is less than $1,000 after taking into account withholding and credits. (Though it is called a penalty, it is essentially interest tied to the federal short-term rate.)
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According to the IRS website, “The Underpayment of Estimated Tax by Individuals Penalty” is for persons, estates, and trusts if they fail to pay enough estimated taxes on income or if the payment is overdue.
“The penalty may apply even if we owe you a refund,” the site read.
IRS officials recently delayed making gig workers report payments over $600 acquired through apps such as Zelle, Cash App, Venmo, and PayPal, according to Breitbart News.
“The postponement of the rule is a victory for gig workers who work more than one job to make ends meet in President Joe Biden’s struggling economy,” the article said.
In January, a survey found most Americans agree that Congress should repeal funding for 87,000 additional IRS agents, per Breitbart News.
It is important to note the outlet reported in April that an IRS job posting showed the agency was hiring armed agents to take up positions across the nation.