IRS Increases Interest Rate for Underpayment of Taxes by Over 150%
Taxpayers who fail to pay their estimated taxes on time could face hefty penalties. The Internal Revenue Service (IRS) has increased the interest rate on estimated tax underpayments from 3% to 8%, making it even more important to stay on top of your tax obligations.
Key Points:
- The IRS charges an 8% penalty on estimated tax underpayments.
- Individuals must generally pay at least 90% of their current-year tax bill or 100% of the previous year’s tax bill to avoid an underpayment penalty.
- Taxpayers with fluctuating or self-employment income are particularly at risk of underpayment penalties.
- There are several ways to avoid underpayment penalties, such as using the IRS tax-withholding estimator, adjusting your tax withholding, and making quarterly estimated tax payments.
- Employees who are withholding too little can change their recurring tax withholding, or withhold an additional dollar amount, by filling out a revised Form W-4 with their employer.
- If you take required minimum distributions from an individual retirement account, you can choose a higher withholding amount for those distributions.
To see past publications please visit our Knowledge Center.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.
