Update to below: the IRS extended the tax payment deadline due to COVID-19 (coronavirus). With the change, 2019 tax year payments and Q1 estimated tax payments are now due by July 15, 2020. Many state tax deadline extensions have also been announced, with more to come.
When the tax deadline arrives, if you do not file a return on time, it will result in a tax penalty. You can, however, file an IRS tax extension to avoid a late filing penalty, and it’s a whole lot easier than you probably thought, if you haven’t filed for one before.
There are a lot of reasons why you might not be ready to file your taxes by the tax deadline. For example, you’re waiting for a late form, a corrected form just arrived, your tax preparer is overwhelmed and couldn’t get to your return in time, or you do your own taxes and simply procrastinated too long. Relax, stuff happens, and this is why the IRS offers extensions.
There is a huge caveat to filing an IRS tax extension that you need to be aware of, however: the IRS gives you extra time to file through an extension, but not to pay. And if you owe taxes and do not pay on time, the interest charges and penalties can be significant. So estimate your tax liability and pay at least 90% of it (or begin an IRS installment agreement plan) to avoid that mess.
In order to make this an organized read, I thought it would be best to do a Q&A format on the tax extension basics.
When is the Tax Extension Deadline?
The IRS tax extension deadline is the same as the regular tax deadline (typically April 15, but it is pushed to the next business day if the 15th falls on a Friday through Saturday).
There are some groups of U.S. citizens that get automatic tax extensions, without needing to file for an extension:
- Members of the military and others serving in Afghanistan or other combat zone localities. Typically, military taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due.
- Taxpayers abroad: U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file. Tax payments are still due on the typical deadline date.
- Those affected by certain recent natural disasters – the IRS highlights who this impacts and when their filed returns are due.
How Long is an IRS Tax Extension? When is the Extended Filing Deadline?
6 months from the original April 15 tax deadline (or the next business day if that falls on a Friday through Saturday).
What is the IRS Extension Form?
The official IRS form to file for a tax extension is IRS Form 4868.
Where and How do you File a Tax Extension?
If you believe that you will be due a tax refund, then the best way to file a tax extension is to Free File and submit Form 4868.
If you owe money, estimate what you will owe and pay that amount with Form 4868. You can do this via efiling, mailing a paper form or by paying your taxes online. When you pay taxes online (i.e. through IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or by making a credit or debit card payment), you can select that this is for Form 4868 and an extension will be automatically filed when you complete payment – no additional paperwork is necessary.
What are the Penalties if I don’t File or Pay my Taxes on Time?
Filing an extension and paying your taxes on time is critical, because you want to avoid penalties, which can be fairly steep if you do not pay 90%+ of the taxes you will owe by the tax deadline:
- Interest Charges: you must pay interest on any tax not paid by the original tax deadline. The interest rate is determined quarterly and is the federal short-term rate plus 3%. Interest compounds daily.
- Late Payment Penalty: the late payment penalty is usually ½ of 1% of any tax (other than estimated tax) not paid by the tax deadline. It is charged for each month or part of a month the tax is unpaid. The max penalty is 25%.
- Late Filing Penalty: A late filing penalty is usually charged if your return is filed after the due date (including extensions). The penalty is usually 5% of the amount due for each month or part of a month your return is late. The maximum penalty is 25%. If your return is more than 60 days late, the minimum penalty is $135 (adjusted for inflation) or the balance of the tax due on your return, whichever is smaller. You might not owe the penalty if you have a reasonable explanation for filing late.
What if I Already Filed, but my Return was Incorrect or Incomplete?
If you’ve already filed your taxes, but made a mistake and/or received new forms/documentation, you should file an amended tax return with the IRS (and appropriate states).
Can you Get an Extension on Estimated Tax Payments?
No. There is no extension on quarterly estimated tax payments.