Gig workers, you might get a penalty from the IRS
Many aren’t paying quarterly as required
More Americans who pay their income taxes each quarter are being penalized by the IRS for making mistakes or missing payments.
There’s been a nearly 33% jump — from almost 7.5 million to nearly 10 million — in the number of penalties levied between fiscal years 2007 and 2016, IRS data show.
Retirees, business owners, investors, gig workers, freelancers and others with non-traditional jobs typically get penalized because they’re often non-wage earners who don’t work for employers that regularly withhold taxes on salary income.
“The data seems to suggest there are more people who either don’t understand they need to pay quarterly taxes or are making mistakes,” said IRS spokesman Eric Smith.
Although the IRS isn’t sure why the number of penalties is rising, some tax experts suggest that the increase may be driven by a workforce shift in which more Americans have informal jobs and lack long-term employment contracts.
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.
The pay-as-you-earn requirement applies to non-wage earners in certain situations, including those who expect to owe $1,000 or more for a current tax year after subtracting refundable credits. 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.
Those the IRS feels made mistakes, or underpaid, are now receiving penalty notices for the 2016 tax year. “Prime time is during the summer,” said Smith.