Millions of taxpayers owe the Internal Revenue Service a check today.
If they miss the deadline, they will end up owing the agency hundreds of dollars in penalties on top of unpaid tax.
June 17 is the last day that Americans who do not have money deducted from their paycheck can send the IRS their estimated taxes for the second quarter.
Those who are paid by an employer typically have their federal, state and payroll taxes automatically withheld from their paycheck.
But millions of self-employed workers, business owners, retirees and investors do not. This means they have to send the IRS their estimated tax payments on a quarterly basis.
The number of Americans who are subject to estimated taxes is on the rise thanks to more and more people starting their own business or taking gig work in recent years.
Millions of self-employed workers, business owners, retirees and investors have to send the IRS their estimated tax payments on a quarterly basis
Failure to make an estimated tax payment could cost taxpayers hundreds of dollars – as underpayment penalties have surged in recent years.
In 2023, 14 million people sent quarterly payments to the the IRS – a 16 percent rise from the year before.
Americans are required to pay the IRS throughout the year, either through quarterly estimated taxes or simply through paycheck withholding.
‘Taxes are pay-as-you-go, to be paid as income is earned, during the year,’ the IRS said in a notice earlier this month about the June 17 cutoff.
The next payments for quarterly taxes for this tax year fall on September 16, 2024 and January 15, 2025.
Falling behind on these quarterly payments can lead to substantial fines and penalties, which have grown more punishing in recent years.
The average estimated tax penalty for underpayment in 2023 soared to around $500 per person – up from around $150 the year before.
‘These charges can hit hard, so getting it right can save people hundreds or even thousands of dollars a year,’ Richard Pon, a CPA in San Francisco told The Wall Street Journal.
The main reason for this surge is that the IRS charges interest on the amount people have underpaid, which is based on the federal short-term rate.
The rate on underpayments set by the IRS, which is based on the short-term Treasury rate plus three points, was at just 3 percent in 2022 when interest rates were at rock bottom.
Following the Federal Reserve’s aggressive interest rate hikes since 2022, the IRS now charges 8 percent interest for underpayments.
The number of Americans who are subject to estimated taxes is on the rise
Generally business owners, freelancers and gig workers must make quarterly estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return.
Corporations which expect to owe tax of $500 or more generally must make estimated tax payments, and some investors.
Americans can use the IRS interactive tax assistant online tool to determine whether they could owe quarterly taxes.
Taxpayers can make the payments through their online account, through IRS Direct Pay or through the IRS mobile app.
Payment by check or money order is also accepted.
