A recent IRS report suggests that tax penalties for mistaken or missed payments for non-wage earners are up 33% jump — from almost 7.5 million to nearly 10 million — over the last 10 years.
Federal tax law requires many non-wage earners to file estimated tax payments quarterly so they won’t be treated differently from the roughly 80% of U.S. taxpayers whose income taxes are deducted from their salaries throughout the work year. Retirees, business owners, investors, gig workers, freelancers and others with non-traditional jobs are often non-wage earners who don’t work for employers that regularly withhold taxes on salary income. Therefore, it is up to the earners themselves to make estimated quarterly payments.
These earners should submit quarterly payments that will cover at least 90% of the estimated tax due on their income in a given year. Certain exceptions apply to farmers, fishers, casualty and disaster victims, recent retirees, people who are newly disabled, those who base their payments on the prior year’s tax and people whose income flowed in unevenly during the year.
The IRS denies creating a special task forced aimed at identifying mistaken or missed tax payers, so why the jump? “I think what’s driving it is the change in the workforce, change in employment relationships and the increase in informal work arrangements that people are calling the gig economy,” Nathan Rigney, senior tax research analyst with The Tax Institute at H&R Block, a major U.S. tax preparation company told USAToday.
While it may be too late to fight any penalties you received this year, planning ahead for next year, most non-wage earners can reduce or eliminate any penalties by increasing their estimated tax payments for the remainder of 2017. For help with your estimated tax payments, contact us today.