The report said the Internal Revenue Service assessed $7 billion in penalties last year, nearly four times the $1.8 billion it assessed in 2022 after the Biden administration boosted the agency’s staffing.
The bulk of the penalties will be assessed to people who underpaid quarterly estimated income taxes, including business owners, gig workers, investors and others who don’t typically withhold federal income tax payments from their checks. According to the Wall Street Journal.
The average estimated tax bill for fiscal year 2023 has risen to $500, up from $150 the previous year, according to IRS data cited by The Wall Street Journal.
If a non-employee pays less than the estimated amount for a quarter, a penalty is assessed in the form of interest.
As interest rates have skyrocketed in recent years, the penalty rate has also increased from just 3% in 2021 to 6% in 2022.
Last year, the tax rate increased to 8% in the fourth quarter, and this increased rate remained in effect through the first two quarters of the current fiscal year.
“These fees can be a big hit, and if handled properly, you could potentially save hundreds or even thousands of dollars a year,” San Francisco-based accountant Richard Pong told The Washington Post.
Employees typically have taxes withheld from their paychecks, while others are required to pay some or all of their federal income tax quarterly.
The deadline to pay second-quarter taxes to the IRS is Monday.
Tax revenues are expected to increase by up to $561 billion from 2024 to 2034, thanks to enhanced enforcement made possible by funds from the Democrats’ Inflation Control Act, passed in August 2022.
The Inflation Control Act pumped $80 billion into the IRS and allowed it to hire thousands of additional employees.
Earlier this year, the Treasury Department released a study showing that the IRS expects to collect hundreds of billions of dollars more in delinquent and unpaid taxes than previously anticipated.
In 2022, the Congressional Budget Office estimated that tens of billions of dollars in new IRS funding provided by IRAs would increase revenues by $180.4 billion between 2022 and 2031.
But House Republicans included $1.4 billion in cuts to the IRS in the debt ceiling and budget-cutting package passed by Congress last summer.
A separate agreement would collect an additional $20 billion from the IRS over the next two years to be diverted to other non-defense programs.
With post wire
