Americans who choose to pay their taxes quarterly face a concerning surge in penalties imposed by the Internal Revenue Service (IRS). These penalties stem from the agency’s assertion that these individuals underpay their tax obligations.
In light of this trend, Yahoo Finance’s Kerry Hannon offers strategies to help taxpayers avoid additional fees.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
This post was written by Angel Smith
Video Transcript
Americans who choose to pay some or all of their income taxes quarterly are increasingly getting fined for underpaying here to explain why is Yahoo finances carry Hannon and carry, this is something that affects many Americans.
So what should folks be keeping in mind?
Yeah, I mean, it truly is something that, that’s easy to skip by because, but the fact is so many people are contract workers now or gig workers and this can even touch, uh, you know, retirees and small business owners.
So it’s important to make your quarterly tax payments to the IRS.
Um, today is one that is due today on June 17th.
The next one is the September 16th and then January 15th.
What happens and why this has become kind of a startling big deal is that if you don’t pay at least 90% of at least 90% of what your income is gonna be for the year in these quarters broken down in these quarters, um, you could be subject to a penalty which is in essence interest on the money that is due the IRS.
So how they calculate that is, it’s now 8%.
That’s a huge amount.
Um, it’s compounded daily and it use to be, I mean, just back in 2021 it was 3%.
So let’s go back to what our interest rates are.
Now.
We talked, you know, we talk about the impact of the higher interest rates and this is where it’s coming in to hit taxpayers because they take the federal short term interest rate plus 3% points to determine how much you’re gonna pay.
If you are not on that, uh, gap of what you are owed, the IRS is owed and what you have paid.
So, it’s really important because when you’re a contract worker, no one’s withholding these taxes for you.
If you’re with an employer, they do this for you.
And so it makes it pretty seamless but when you’re on your own it’s up to you to do it.
And underpayment of taxes is something that really can really hit you hard if you’re not paying attention, particularly this year with the interest rates as high as they are on that money that’s due.
Yeah, Carrie, no one wants to pay interest on their taxes.
So, what can people do to avoid these types of penalties?
Yeah, it’s very important to try to break it down and make these quarterly estimates.
And I understand that if you’re a contract worker, your income can fluctuate and it makes it really tricky to do.
But, I mean, they love it if you can pay at least 100% of what you paid last year.
Then, uh, you know, broken down into these payments, you’re probably gonna be in pretty good shape.
But what I would recommend people and the experts I talked to is for each paycheck, you don’t set aside automatically a portion for taxes, play your own, uh, you know, employer with holder and do it paycheck by paycheck.
So it’s not such a startling big amount of money.
The IRS has an individual taxpayer center that is very helpful at answering some of these questions.
Um I personally like working with a tax advisor because they can help you.
Uh I know for me, I freelanced for many years.
Um He, my accountant would send me, uh and uh you’re ready for your quarterly payment.
This is how much you should send.
This is where you send it to based on last year’s tax return.
So he broke it down for me, but you can do this yourself and through tax uh software can help you as well.
But I think it’s very important to, to pay attention and try to automate these payments for yourself.
So you make sure you don’t miss these deadlines again.
The final thing I’ll say is just pay something even if you miss whatever that deadline, the June 17th or the, the September 1, whatever it is, pay any time because the compound is daily, the compounded interest is daily.
So you get something in there, you’re gonna reduce whatever that potential penalty could be.
There are little ways around all of this, of course, but this is the general rules.
Very important information and now carry Hannon.
Thank you so much.
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