Next Monday, many American taxpayers face the feared deadline to make their obligated tax payments to the Internal Revenue Service (IRS). This deadline is very important, as skipping the correspondent payment could result in significant fines and penalties for them, and could cost hundreds and even thousands of hours.
For some taxpayers, especially those who earn additional income, for example, because of being self-employed or through their own businesses, the date of June 17 marks the next due date for quarterly estimated tax payments. That’s because, unlike employees who have taxes withheld directly from their paychecks, freelancers and business owners are required to send quarterly payments to the IRS on income not subject to withholding.
The problem of quarterly estimated tax payments is affecting an increasing number of Americans, and this is costing them millions and more millions. Data from the IRS shows that in 2023, 14 million people made quarterly payments, representing a substantial 16% increase over the previous year. This increase is attributed to the growing number of people who are doing freelance jobs or have started their own businesses.
Fines and Penalties for Underpayments
Failing to make quarterly estimated tax payments can result in penalties for underpayments, which have become more severe in recent years due to increases in interest rates.
The current IRS penalty imposes an 8% interest charge for underpayments, up from 3% in previous years. In 2023, the average penalty for underpayment increased to $500 per person, up from about $150 in 2022, IRS data show.
Who Should Make Quarterly Payments?
Generally, self-employed workers, freelancers, and small business owners are required to make quarterly estimated tax payments if they anticipate a tax liability of at least $1,000 when filing their tax return. However, others may also be affected, including investors who sell assets such as stocks or bonds throughout the year.
In addition to June 17, the next due dates for quarterly payments are September 16 and January 15, 2025. Taxpayers can make their payments online through the IRS website, using IRS Direct Checkout or credit or debit card payments through the super friendly and useful IRS2Go app.
Payments can also be made from a checking or savings account through an online account for individuals or Direct IRS Payment.
Extensions for Business Tax Returns
On the other hand, for companies, the filing date for business tax returns has been extended. However, it is important to remember that an extension of time to file the return does not mean an extension to pay taxes. It is crucial to communicate clearly with an accountant in order to comply with all tax obligations and avoid additional penalties and interest.
To avoid problems with the IRS and ensure compliance with all tax obligations, taxpayers are advised to follow some key tips:
- The Joy of advance planning: It is important to plan ahead and accurately calculate the tax liability to avoid underpayments.
- Always ask an accountant: Maintaining open and regular communication with an accountant can help ensure that all tax requirements are met and fines and penalties are avoided.
- Detailed asset record: Keeping a detailed record of all assets and financial transactions can facilitate accurate filing of tax return.
- Timely payments: Making tax payments in a timely manner and using available online payment options can ensure that taxpayers meet deadlines set by the IRS.
