It's possible that some taxpayers won't realize they owe the IRS money on Monday, which might mean they owe them a sizable sum in April of next year. (Photo : by Zach Gibson/Getty Images)
It's possible that some taxpayers won't realize they owe the IRS money on Monday, which might mean they owe them a sizable sum in April of next year.
The problem, which entails quarterly estimated taxes or annual payments to the IRS on income not subject to withholding, is catching up with more and more Americans. Payroll taxes, state taxes, and federal taxes are normally deducted straight from an employee's paycheck when they are paid by their employer. However, millions of Americans currently supplement their income by working for themselves or running their own enterprises, which do not require them to pay taxes.
In those cases, taxpayers need to send their estimated tax payments to the IRS on a quarterly basis, with the next due date on June 17. The IRS also advises that employed taxpayers can avoid this issue by requesting their employers withhold more money from their paychecks. However, this requires workers to be aware that they might owe additional taxes.
According to a notice from the IRS earlier this month regarding the June 17 payment deadline, taxes are meant to be paid as income is earned throughout the year.
Put another way, you must pay your taxes to the IRS on a regular basis throughout the year, either by paycheck withholding or quarterly estimated taxes, regardless of whether you work a job or earn money on the side. The problem is that if you skip that step and wait until April 15 of the next year to make the payment, you may be subject to fines and penalties.
Estimated taxes are due for an increasing number of Americans; according to IRS data, 14 million people filed quarterly returns to the tax department in 2023. Compared to 2022, when 12.1 million persons paid the quarterly tax, that is a 16% increase. The amount of people starting their own firms or taking up gig labor is what is causing this growth. According to an Upwork research, a record 64 million Americans made money from freelancing in 2023-a 4 million increase from the previous year.
Underpayment penalties, harsher in recent years, may arise from neglecting to pay anticipated taxes. This is because the IRS levies interest on the amount that individuals fail to pay, which is determined by the federal short-term rate. This financing charge has increased due to rate rises by the Federal Reserve since 2022.
Underpayments are currently subject to an 8% interest charge from the IRS, up from 3% in 2021 when the Fed's target rate was almost zero. According to IRS data, the average penalty for underpayment increased to $500 per person in 2023 from about $150 in 2022.
Who Needs to Pay Quarterly?
Freelancers, gig workers, and owners of small businesses organized as partnerships, sole proprietorships, or S corporations are generally required to submit quarterly estimated tax returns if they anticipate owing at least $1,000 in taxes.
However, Fidelity reports that other people can also be liable, such as investors who sell stocks or bonds during the year (taxpayers can use this IRS online tool to check whether they would owe quarterly taxes.)
The two extra payment deadlines for the current tax year are September 16 and January 15, 2025, in addition to June 17. Taxpayers can utilize IRS.gov/payments or the IRS2Go app to pay using credit or debit cards, or they can use their bank or savings account to make online payments through IRS Direct Pay or an online account for individuals. (The first quarterly estimated tax deadline for 2024 was on April 15).
The content provided on MoneyTimes.com is for informational purposes only and is not intended as financial advice. Please consult with a professional financial advisor before making any investment decisions.
