If You Underpay Your Taxes, Here's How the IRS Will Penalize You
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 up front.
About 50% of Americans have at least one side gig. 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.
Also Know: These Are the Receipts To Keep for Doing Your Taxes
Learn More: 5 Signs You’re Losing Money Every Month — and How To Find the Leaks
IRS Hikes Fees for Tax Underpayments
The IRS charges 7% interest on estimated tax underpayments. That’s up from 2% since 2021. The increase is one of the many effects of rising interest rates.
The IRS annually assesses more than $1.5 billion in penalties for underpaying estimated taxes.
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.
On-Time 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.
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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