If you won’t be able to complete your U.S. income tax on time, you can request an automatic extension of the time to file. The extension is just for the filing date. It doesn’t change the due date for any taxes you owe.
The IRS expects you to file your annual income tax return on time and can charge a penalty if you don’t. But if you can’t meet the regular tax filing deadline for some reason, they offer you an out. You can usually escape the penalty by using Form 4868 to request an automatic extension to file your return.
The form must be submitted on or before the normal tax due date. For 2022, the deadline is April 18th. Most years, it’s April 15 for personal returns.
The extension will only change your deadline for filing the tax return. It will not change the date your taxes are due.
What is a tax extension?
A tax extension gives you more time to file your tax return. It lets you delay the due date for filing your IRS tax return by up to 6 months without paying a penalty. The extra time is 4 months if you are located outside the United States.
The extension only applies to the filing deadline. It does not delay the due date for any money you owe. If you will owe money, the IRS wants you to estimate what you’ll owe and pay in full by the normal tax deadline. If you don’t, they’ll charge you a penalty and interest on any money you owe.
Why should you file for an extension if you can’t pay?
It’s important to file your tax return or file for an extension even if you can’t pay. Here’s why:
There are two separate penalties associated with late tax filings:
1. A penalty for failing to file or filing late
2. A penalty for failing to pay or paying late
If you don’t file on time and don’t pay on time, you’ll get hit with both penalties.
The late filing penalty is higher than the late payment penalty. You can avoid that penalty by filing Form 4868 to request the tax filing extension.
How to file for a tax extension
Getting a tax extension is easy and free. To apply, you complete IRS Form 4868 and submit it to the IRS on or before the day your taxes are normally due.
The form is very brief. There are only 9 lines to be filled in. The form does not ask you to give a reason for late filing. It asks for identification information and asks you to estimate the amount of income tax you owe. It can be filed electronically or mailed to the IRS.
Most tax software programs include the capability of filing Form 4868 electronically. You can also file electronically for free by using IRS Free File.
How much is the late filing penalty?
If you don’t file your tax return on time (and don’t file for the extension), you’ll be charged a failure to file penalty (also called late filing penalty).
The late filing penalty is 5% (.05) of the unpaid taxes for each month or part of a month the return is late. For instance, suppose you’ll owe $27,000 in combined income and self-employment taxes. If you miss the filing deadline by one day, you’d owe $28,350 instead of $27,000.
($27,000 X .05= $1,350)+ $27,000 = $28,350
At 2 months that would grow to $29,700, and so forth. The penalty caps out after 5 months at 25% of the taxes you owe.
You can avoid this fine by requesting the automatic tax extension by the normal tax-due date.
How much is the late payment penalty?
If you don’t pay all the taxes you owe by the normal tax deadline, you will be charged a penalty and interest. As noted above, you’ll be charged the penalty and interest on money owed even if you apply for the filing extension.
The late-paying penalty is one-half of one percent (.005) for every month or part of a month the taxes are unpaid.
In addition, you will have to pay interest on the unpaid taxes and accrued penalties you owe. The interest rate for paying late varies. At present (February, 2022) it is equal to the federal short-term rate plus 3%, compounded daily.
What happens when both penalties apply?
If you have both a failure to file penalty and a failure to pay penalty, the late filing penalty will be reduced by the amount of the failure to pay penalty. So, the combined penalty for the first 5 months is 5% a month, for a total of 25%.
But while the failure to file penalty stops at 5 months, the failure to pay penalty remains in place for up to 50 months. If you don’t file for an extension and don’t pay the taxes you owe for 50 months, your total penalty could add up to 47.5% of the taxes you owed. (That’s 25% for the first 5 months, and 22.5% for the remaining 45 months.)
On top of that, you will also have to pay interest on all the money and fines you owe.
What to do when you can’t pay on time
If you won’t be able to complete your tax return by the normal tax deadline, file Form 4868 or a completed tax return and pay as much as you can pay. The more you can pay, the less interest you’ll pay going forward. Another option suggested by the IRS is to use a credit card to pay your taxes if you can.
If you can’t pay all that you owe, you can apply to the IRS for a payment plan. Depending on the amount you owe, you may be able to set up a short-term or long-term payment plan to pay off your debt.
What about state income tax extensions?
If you won’t owe any income taxes to your state, then usually you don’t have to request an extension from your state. But if you do have a state tax balance due, you will need to file for an extension in your state. Contact your state or a tax professional for more information.
We can help
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The Bottom Line
Don’t panic if you can’t file on time or pay all the money you owe on time. But do take action.
Avoid the 5 percent-a-month late filing penalty by requesting the 6-month extension of the time to file your tax return. Pay as much as you can at that time and contact the IRS to work out a payment plan to pay off the balance.
Finally, if you file for the tax extension, be sure to file the completed return before the extension runs out and check with your state to see if you will need to file a state extension as well.
Other Tax Resources
7 Tax Deductions for the Self-Employed
How Much Does a Small Business Pay in Taxes?
Federal Small Business Taxes Information
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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