One of the Internal Revenue Service’s fangs has quietly grown much sharper, as the interest rate charged on the underpayment of federal income taxes has soared from 3% to 8% in less than two years. If you’re not sure if you’re hitting the right pace, it’s time to double-check your situation to make sure you don’t throw any more money into Uncle Sam’s rathole than you must.
While many taxpayers focus on the annual April deadline, the federal income tax actually works on a “pay as you go” basis, in which the government demands recurring bites out of your income, with those bites rising and and falling in proportion to what you’re earning over the course of the tax year. If the math comes out wrong enough when you file, the IRS will penalize you by demanding you pay interest on money you were supposed to have forked out earlier.
In August, the IRS announced that the interest penalty charged against underpayments was rising to 8% for the calendar quarter that started Oct. 1. The…
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