Earlier this fall, the IRS increased its interest penalty on estimated tax underpayments to 8% – a notable jump from 3% just two years ago. The IRS indicated that the interest rate penalty is determined every quarter and that for taxpayers other than corporations the assessed rate is the federal short-term rate plus three percentage points.
Self-employed workers and independent contractors, including many gig workers, will be at risk of being hit with the underpayment penalty if they fail to pay the amount the IRS believes they owe. Taxpayers don’t face an interest penalty for underpayment if the balance due is under $1,000 after their credits and other tax account information is factored in.
