You may owe the IRS money on Monday; skipping payment could cost you hundreds of dollars

Yellen says IRS audits have increased to focus on the very wealthy


Yellen says IRS audits have increased to focus on the very wealthy

02:39

Some taxpayers may not be aware that they owe the IRS a check on Monday, which could result in them owing a chunk of change to the IRS next April.

More and more Americans are becoming involved in the issue, which involves quarterly estimated taxes, or payments to the IRS throughout the year on income that is not withheld. People who are paid by an employer typically have their federal, state, and payroll taxes withheld directly from their wages. But millions of Americans today earn extra money as self-employed or through their own businesses, where taxes are not deducted.

In those cases, taxpayers are required to send the IRS their estimated tax payments on a quarterly basis, with the next due date falling on June 17. The IRS says employed taxpayers can also get around this problem by asking their employers to withhold more. money from their wages, but that of course depends on whether the employees are first aware that they may owe additional taxes.

“Taxes are pay-as-you-go, which are payable as income is earned during the year,” the IRS said in a statement. notification earlier this month about the payment deadline of June 17.

In other words, regardless of whether you earn money through a paycheck or a side job, you'll have to deal with the IRS regularly throughout the year, either through withholdings from your paycheck or through estimated quarterly taxes. And the thing is, skipping that step can lead to fines and penalties if you wait until April 15 of the following year to pay.

The number of Americans subject to assessed taxes is increasing. IRS data shows that 14 million people sent quarterly payments to the tax authorities in 2023. That is 16% more than in 2022, when approximately 12.1 million people paid the quarterly tax. The driving force behind this increase is the growing number of people who are doing or have done gig work started their own businesses. A record 64 million Americans made money from freelance work in 2023, an increase of 4 million from the previous year, according to a analysis from Upwerk.

Higher punishments

Failure to pay estimated taxes can result in underpayment penalties, which have become stricter in recent years. That's because the IRS charges interest, based on the federal short-term rate, on the amount people underpaid — and those borrowing costs have skyrocketed due to the Federal Reserve's rate hikes since 2022.

The current IRS penalty calculates an interest charge of 8% for underpayments, compared to 3% in 2021, when the Fed's interest rate was near zero. In 2023, the average underpayment penalty rose to $500 per person, up from about $150 in 2022, IRS data shows.

Who owes the quarterly payments?

In general, freelancers, gig workers and people who own small businesses through sole proprietorships, partnerships and S corporations must make an estimated tax payment every quarter if they think they will have a tax liability of at least $1,000 when they file.

However, others could be on the hook too, including investors who sell assets like stocks or bonds throughout the year. according to to Fidelity (Taxpayers can use this IRS online tool to determine whether they may owe quarterly taxes.)


What the IRS is actually looking for could trigger a tax audit

04:16

Aside from June 17, the two additional payment dates for the current tax year fall on September 16 and January 15, 2025. (The first quarterly estimated tax deadline for 2024 was on April 15.) Taxpayers can make online payments from their checking or savings account through a online account for private individuals or tax authorities Direct paymentor can use IRS.gov/payments or the IRS2Go app for credit or debit card payments.

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