IRS Warns of Sept. 15 Deadline to Avoid Tax-Time ‘Surprise’

The Internal Revenue Service (IRS) building in Washington on March 22, 2013. Susan Walsh/AP Photo

The Internal Revenue Service (IRS) has issued a reminder that some taxpayers face a looming deadline to pay estimated tax payments in order to “stay current and avoid a surprise at tax time” in the form of potential penalties for underpayment.

Certain categories of taxpayers that do not have taxes withheld from their income through an employer or other withholding agent face a Sept. 15 deadline to submit their third quarter estimated tax payments.

Estimated tax payments are typically made by individuals and entities that do not have taxes withheld from their income, including gig workers, sole proprietors, retirees, partners, and S corporation shareholders. Retirees and individuals with irregular income (such as those with seasonal) income could also be required to make estimated tax payments if their income is not subject to withholding.

People unsure of whether they have to pay estimated taxes can consult IRS guidance on Form 1040-ES (pdf) for detailed requirements.

The key threshold for determining whether estimated tax payments are required is if the taxpayer expects to owe $1,000 or mare in taxes when they file their annual tax return after accounting for withholding and tax credits.

“The IRS encourages taxpayers earning income not normally subject to withholding to consider making estimated tax payments throughout the year to stay current and avoid a surprise at tax time,” the tax agency said in a statement.

The IRS has an online tool that wage-earning taxpayers can use to tailor the amount of income tax they should have withheld from their paychecks, which can also help avoid the need for quarterly estimated tax payments.

Adjusting Withholdings

On Jan. 19, 2023, the IRS announced that it made available an online tool that taxpayers can use to determine if they have too much or too little tax withheld from their paychecks.

Called the Tax Withholding Estimator, it lets taxpayers figure out if they will receive a refund or need to make a payment to the IRS in order to avoid owing taxes and potentially incurring penalties the following year.

Having too much tax withheld and waiting for a refund at tax time is akin to giving the government an interest-free loan.

But if a taxpayer does not have enough taxes withheld from their paychecks throughout the year, they may owe a balance when they file their taxes. This means they will have to pay the remaining balance of taxes owed to the IRS when they file their tax return.

Owing a balance at tax time can be a significant financial burden, especially if the balance is large or if the taxpayer is struggling to make ends meet.

There are also penalties and interest that may apply when the taxpayer owes a balance when filing their taxes.

The IRS charges interest on any unpaid taxes starting from the original due date of the return. Penalties may also be assessed if the taxpayer fails to file their return on time or if they owe taxes and fail to pay them by the deadline.

Owing a balance can also have negative effects on credit score as it is considered a debt that is unpaid. This can also lead to wage garnishments, liens on property, and even imprisonment if the taxpayer fails to pay their taxes.

Tax Enforcement Crackdown

The IRS’s reminder to taxpayers that they face a Sept. 15 deadline for submitting estimated tax payments comes as the agency prepares to launch what it calls a “sweeping, historic” tax enforcement crackdown using cutting-edge technology like artificial intelligence to boost tax revenue.

The Inflation Reduction Act that President Joe Biden signed into law in 2022 initially included around $80 billion to expand the IRS’s budget over 10 years.

This amount has since been pared down to around $60 billion due to the debt-ceiling deal struck between President Biden and House Majority Leader Kevin McCarthy (R-Calif.), which clawed back $10 billion in each of calendar years 2024 and 2025 from the tax agency’s appropriations.

Part of the money being pumped into the IRS is to give it a technological facelift, as outlined in a 150-page strategic operating plan (pdf) released in April.

A portion of the cash infusion would buy artificial intelligence tools, which are now being deployed to catch tax evaders, the IRS announced last week.

The new AI-powered enforcement thrust is focused on higher-earning Americans and big corporations, with the IRS pledging not to increase audit rates for people earning less than $400,000 per year.

This has been an oft-repeated promise following Republican claims that working-class taxpayers would be subjected to tougher enforcement thanks to the tens of billions of dollars in additional IRS funding.

As part of the new enforcement crackdown, the tax agency said that it would prioritize cases involving taxpayers earning over $1 million but with recognized tax debt of more than $250,000.

Taxpayers in America pay around 85 percent of the total taxes they owe, per IRS estimates, with the difference between what is owed and what is paid known as the tax gap.

The IRS estimated that, between the years 2014 and 2016, the annual tax gap was around $496 billion.