Are Hidden Tax Penalties Inflating Your Tax Bill?

The author visiting Mind Your Mo in training at the Thoroughbred Center. Photo by Kristyn Whitican, Lexington, KY.

If you’re a racing jockey, you know all too well how unpredictable your income can be. One week, you’re earning a big payday from a major win, and the next, you might have little to no income. This inconsistency makes it especially tough to know how much to pay in estimated taxes, which can lead to unexpected penalties that quietly add to your tax bill.

Are you unknowingly paying these penalties?

Why Do Underpayment Penalties Exist?

The IRS requires taxes to be paid throughout the year, not just at tax time. For salaried employees, this happens automatically through employer withholding. But as a jockey, most of your income comes from riding fees, purse winnings, and endorsements, which often don’t have tax withholding. Instead, you’re expected to make quarterly estimated tax payments.

If you underpay your estimated taxes during the year, the IRS may impose a penalty—even if you pay your total taxes owed when you file your return. These penalties exist to ensure taxpayers keep up with their obligations, but for someone like you, whose income fluctuates wildly, meeting the quarterly deadlines can be a significant challenge.

How Underpayment Penalties Hide in Your Tax Return

Underpayment penalties are calculated using IRS Form 2210, the “Underpayment of Estimated Tax by Individuals, Estates, and Trusts.” However, this form often gets buried in hundreds of pages of tax forms and documents, making it easy to overlook.

What’s worse, the penalties themselves are usually rolled into the “amount due” on your tax return, without any obvious explanation. That means you could be paying these penalties year after year without even realizing it. The result? A tax bill that’s higher than it should be.

Why It’s Tough to Get Estimated Tax Payments Right as a Jockey

The racing industry is all about highs and lows. Your income depends on your performance, the quality of horses you ride, and the frequency of races you participate in. Early in the year, income might be low, while the summer and fall bring big purses and riding opportunities.

This unpredictability makes it nearly impossible to know how much to pay in estimated taxes at the start of the year. If you pay too little, penalties add up. If you pay too much, you’re parting with cash that you might need for travel expenses, gear, or even healthcare.

How to Find Out If You’re Paying Penalties

To see if you’re being penalized, ask your tax preparer to include a copy of IRS Form 2210 with your return. This form breaks down how much you’re being charged for underpayment penalties. If you prepare your own taxes, check your software’s reports section for a detailed breakdown of penalties and interest.

Understanding whether you’re paying penalties is the first step to fixing the problem. By knowing where your tax dollars are going, you can start to take control of your finances.

What’s Next?

If you’ve been paying underpayment penalties, don’t worry—there’s a solution. The IRS safe harbor rule can help you avoid penalties, even if your estimated payments aren’t perfect. In the next article, we’ll explain how the safe harbor rule works and how it can provide peace of mind for jockeys with unpredictable income.

Stay tuned to learn how to take the reins on your taxes and avoid unnecessary penalties!