Millions of taxpayers owe the Internal Revenue Service a check today.
If they miss the deadline, they end up owing the agency hundreds of dollars in fines, on top of unpaid taxes.
June 17 is the last day for Americans who don’t have money deducted from their paychecks to 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 paychecks.
But millions of self-employed people, entrepreneurs, retirees and investors do not do that. This means they must send their estimated tax payments to the IRS every quarter.
The number of Americans subject to assessed taxes is increasing thanks to more people starting their own businesses or taking on gig work in recent years.
Millions of self-employed people, business owners, retirees and investors must send their estimated tax payments to the IRS every quarter
Missing an estimated tax payment can cost taxpayers hundreds of dollars, as underpayment penalties have skyrocketed in recent years.
In 2023, 14 million people sent quarterly payments to the IRS – a 16 percent increase from the year before.
Americans are required to pay the IRS throughout the year, either through quarterly estimated taxes or simply through payroll deductions.
“Taxes are pay-as-you-go, which are payable as income is earned during the year,” the IRS said earlier this month in a June 17 notice of the limit.
The next quarterly tax payments for this tax year are September 16, 2024 and January 15, 2025.
Falling behind on these quarterly payments can result in significant fines and penalties, which have become more severe in recent years.
The average estimated tax penalty for underpayment in 2023 rose to about $500 per person — up from about $150 the year before.
“These charges can hit hard, so getting them right can save people hundreds or even thousands of dollars a year,” says Richard Pon, a CPA in San Francisco. The Wall Street Journal.
The main reason for this increase is that the IRS charges interest on the amount people underpaid, based on the federal short-term interest rate.
The IRS’s underpayment rate, which is based on the short-term interest rate plus three points, was just 3 percent in 2022, when rates were at a record low.
After aggressive rate hikes by the Federal Reserve since 2022, the IRS now charges 8 percent interest for underpayments.
The number of Americans subject to assessed taxes is increasing
In general, 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 returns.
Companies that expect to owe taxes of $500 or more generally must make estimated tax payments, and some investors.
Americans can use the IRS’s Interactive Tax Assistant online tool to determine whether they might 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.