If Americans pay their estimated taxes late, they could be in line for a shocking bill from the IRS this spring. Last October, the IRS increased the self-employed taxpayer penalties for filing late or inaccurate payments – or not paying any estimated taxes – to 8%, nearly triple the previous rate of 3%.<\/p>\n
In an effort to tighten monetary policy, the Federal Reserve sent interest rates soaring last year to their highest level since 2001. In order to calculate underpayment penalties, the IRS adds 3 percentage points to the benchmark federal funds rate.<\/p>\n
The IRS warned that a growing number of taxpayers are being assessed estimated tax penalties, which can amount to several hundred dollars. However, it is generally possible to avoid a penalty if a taxpayer pays at least 90% of his or her taxes during the year.<\/p>\n
If you are an average W2 employee, withholding taxes from your income is an obvious option. Taxpayers can adjust their withholding by completing their W4 form with their company’s HR or payroll department. If you believe you will have a shortfall, you can also make additional estimated payments throughout the year.<\/p>\n