"IRS Increases Penalty for Underpaying Estimated Taxes to 8% from 3% in Two Years"

The IRS penalty for underpayment of estimated taxes has increased from 3% to 8% of the shortfall, with self-employed and freelance workers being the most affected. The penalty is calculated quarterly based on the Federal Reserve's benchmark rate and applies to shortfalls in estimated taxes paid by self-employed individuals. The increase in the penalty is a result of the Fed's rate hikes to combat inflation. To avoid the penalty, taxpayers can ensure their filed tax return shows they owe less than $1,000 or pay at least 90% of what they owe for the tax year or 100% of what they owed the prior year. The deadline to pay estimated taxes for the final quarter of 2023 is January 15.