The IRS has hit American taxpayers with a whopping $7 billion in penalties for 2023, and guess who’s taking the brunt of it?
That’s right, it’s the freelancers, gig workers, and self-employed individuals who are struggling to navigate the complicated world of estimated quarterly taxes.
According to the IRS’s own data, the average penalty for underpaying or failing to pay these taxes jumped from $150 in 2022 to a staggering $500 in 2023.
That’s because the IRS decided to nearly triple the penalty rate from 3% to 8% last October.
Ironically, this massive increase is thanks to the Federal Reserve’s attempts to curb inflation by hiking interest rates.
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The IRS calculates its penalties by adding 3 percentage points to the federal funds rate, which has been on a steady climb.
While traditional employees have taxes automatically withheld from their paychecks, freelancers, gig workers, and small business owners often rely on estimated quarterly payments.
But with the IRS cracking down harder than ever, even a small mistake can lead to hundreds of dollars in penalties.
IRS penalties on Americans surged nearly 300% last yearhttps://t.co/AeOgwvrhth
— FOX Business (@FoxBusiness) June 20, 2024
Experts say the best way to avoid these fines is to pay at least 90% of your total taxes throughout the year.
Even if you can’t pay the full amount, paying as much as possible by each quarterly deadline can help minimize the damage.
But here’s the kicker: while Biden promised to go after wealthy tax cheats, the IRS seems more interested in squeezing every last dime out of hardworking freelancers and gig workers.
It’s a slap in the face to the very people who are already struggling to make a living in today’s economy.
As more and more Americans turn to non-traditional work arrangements, it’s time for the IRS to create a fairer, more transparent tax system that doesn’t punish the little guy.
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Until then, freelancers and gig workers will have to keep a close eye on their estimated taxes to avoid getting hit with even more penalties down the line.
