IRS Raises Underpayment Penalty to 8%

The increase primarily affects self-employed workers and independent contractors, with most W-2 employees unaffected.

The Internal Revenue Service (IRS) has raised the interest penalty on the underpayment of estimated taxes to 8%, a significant increase from 3% two years ago.
The increased penalty primarily affects self-employed workers, independent contractors, and gig workers who fail to pay the amount the IRS believes they owe.
Taxpayers can avoid the underpayment penalty if the balance due is under $1,000 after their credits and other tax account information is factored in.
Most taxpayers who are W-2 employees and have tax payments withheld from each paycheck will not be affected by these changes.
The IRS collected $1.8 billion in underpayment penalties from approximately 12.2 million Americans in fiscal year 2022.