Hefty sums are on the horizon for some after a tweak to an IRS penalty could hit gig workers for “hundreds or even thousands of dollars.”
The unelected, unofficial fourth branch of the federal government, comprised of the overreaching Washington, D.C. bureaucracy, remained seemingly ever on the lookout for new ways to impede American prosperity. Now, after an October adjustment to its interest penalty, the Internal Revenue Service is set to gouge taxpayers by 8% on estimated tax underpayments.
Reporting on what could be a surprise bill, especially for those new to receiving income where estimated taxes aren’t withheld, The Wall Street Journal reported, “These higher penalties, which can run in the hundreds or even thousands of dollars, are particularly relevant for gig workers and consultants who don’t have taxes withheld and figure they can pay their taxes come April.”
As with much of the economy under President Joe Biden’s administration, the interest penalty rate saw a sharp climb from two years earlier when it was only 3% and the Journal noted, “People who don’t get steady paychecks with tax withholding could also be affected if they have additional income and get the math wrong.”
The IRS specified the two ways to avoid the Underpayment of Estimated Tax by Individuals Penalty including if, “Your filed tax returns shows you owe less than $1,000,” or if, “You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.”
“It’s a cautionary tale for individuals to think about as we get toward year-end. Are you where you should be?” posited Tinton Falls, New Jersey certified public accountant Joseph Doerrer when speaking with the Journal.
The newspaper also spoke with Warren, New Jersey marketing executive Sameet Durg who detailed his own experience the first year he had learned of the underpayment penalty and how it amounted to thousands of dollars in addition to the already high April tax bill.
“Now I pay attention to taxes all year around. I don’t want the giant hit in April,” said Durg, a client of Doerrer whom he checks with every month.
The move from the IRS came ahead of their announced decision to delay another bureaucratic tweak to the tax code that would adjust the minimum reporting requirement for revenue obtained for goods and services transactions on platforms like eBay, Etsy and Venmo.
Currently set at $20,000, the threshold had been set to change to $600 following the 2021 American Rescue Plan but had subsequently been delayed. Marking 2023 as “an additional transition year,” the latest stall is expected to set the threshold to $5,000 after the 2024 elections.
“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040,” said IRS Commissioner Danny Werfel. “It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”
IRS delays dubious IRS tax-reporting rule on Venmo, PayPal payments until after election https://t.co/MlQL19CzDr via @BIZPACReview — BPR based (@DumpstrFireNews) November 22, 2023
For those unsure about what they might owe on a quarterly basis, the IRS offered a tax-withholding estimator requiring the input of figures from the previous year’s tax return and all sources of income. In fiscal year 2022, the IRS had assessed over $1.8 billion in penalties on roughly 12.2 million individual returns, the Journal stated.