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A tax extension gives filers an additional six months to file their tax returns. Although an extension gives you more time to file your return, it does not extend your tax payment due date if you owe money. It’s free to file for a tax extension, but you could face penalties if you don’t pay some or all of what you owe the IRS. See Personal Finance Insider’s picks for the best tax software » Something is loading.
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Anyone can file a tax extension. Whether you’re out of town, dealing with an emergency, or just don’t have your paperwork in order, you may need extra time to file your taxes. Although your reasoning doesn’t matter, an extension gives you an extra six months to file your tax return. But before asking for an extension, make sure you know the rules first.
What is a tax extension?
A tax extension gives you until October 16 to file a tax return. A tax extension gives you a file extension, but does not give you an extension if you owe money to the IRS.
“Most people think that if they owe the IRS, that’s giving up a few extra months for payment when they don’t,” says Nakiea S. Cook, accountant and owner of NC Accounting & Consulting Solutions. “In fact, you can calculate how much you owe and submit payment with your tax extension form.”
Note: You have two additional months, usually until June 15, to file your tax return and pay any taxes owing without asking for an extension if you are a U.S. citizen or resident alien living outside the United States. States and Puerto Rico. and your principal establishment (or your work station if you are in the military) is outside the United States and Puerto Rico. If you need more than the additional two months, you can request another four-month extension.
If you owe money, you’ll need to make a payment by the filing deadline — which is April 18 for the 2023 filing season — to avoid penalties and interest. However, if you cannot pay the full balance owing, it is always recommended that you file your tax return to avoid a failure to file penalty. You can request an installment arrangement with the IRS online or by filing Form 9465. The penalty for default is reduced when you have an approved payment plan with the IRS.
Is my IRA contribution deadline also extended?
Contributions to Traditional and Roth IRAs for the prior year are due by the tax filing deadline, whether or not you request an extension. However, if you are a sole proprietor, the deadline for contributing to a SEP or SIMPLE IRA is extended with the tax return if you file an extension.
How much does it cost to file a tax extension?
You can file a tax extension in the way that suits you best: electronically or by mail. But not filing an extension and not filing your taxes by April 18 could be costly, which we’ll get to later.
No matter how much you owe, a tax extension is not a payment extension. To avoid a penalty, you must have paid at least 90% of the tax for the current year or 100% of the tax shown for the previous year, whichever is less. For married couples filing jointly with an adjusted gross income of $150,000 or more, the withholding must be at least 110% of the total tax owing for the previous year ($75,000 if filing separately).
Generally, you can avoid the penalty if you owe less than $1,000. Special rules apply to certain people such as farmers, fishermen and certain household employers.
How to file a tax extension
If you pay electronically, you do not need to complete any additional documents. The IRS automatically processes an extension when you pay all or part of your estimated income tax, online or over the phone.
Alternatively, you can file an extension by filing Form 4868. You can use the IRS electronic file or fill out a paper form and mail it in.
On the form, you will provide personal information, including your address, social security number, and estimated tax liability. If you are filing with your spouse, you will also need their social security number. Non-residents will need an Individual Tax Identification Number (ITIN). If you don’t have one, you can apply to the IRS for one.
If you know you owe money, you can pay part of your estimated total tax payable. Use the withholding tax calculator to find out how much you are expected to pay.
“If you owe the IRS, you can submit a payment,” Cook explains. “If you can’t afford to pay, deposit anyway [your tax return] because the penalty for non-declaration is severe.”
You can electronically file Form 4868 and choose to send a check instead of making an online payment, you will need to attach a completed paper form of what you electronically deposited.
“Form 4868 can be filed electronically or by mail, [although] electronics are preferred,” Cook says.
This only applies to federal tax extensions. You will need to check with your state tax authority to see if you need to apply for a separate extension or if your federal form extends to your state returns. You cannot file a tax extension after April 18.
What happens if you miss the deadline to file a tax extension?
If you don’t file your taxes on time, the IRS will charge you interest on the unpaid balance and a late payment penalty, ranging from 5% to 25% of the amount owed each month it remains unpaid.
The penalty for failure to file is 5% and the penalty for failure to pay is 0.5% of unpaid taxes for each month or partial month, up to a maximum of 25%. If the non-filing and non-paying penalties apply in the same month, the non-filing penalty is reduced by the amount of the non-payment penalty for that month. For returns more than 60 days late, the minimum penalty is $435 or 100% of the tax payable on the return, whichever is lower.
For example, if you miss the April 18 deadline to file your 2022 return without filing an extension, your late fee is 5%. If you owe $1,000, that’s a $500 penalty (4.5% non-filing penalty and 0.5% non-paying penalty). That doesn’t even include interest. You’ll be charged interest on the unpaid amount until the entire bill is paid, Cook says.
The bottom line
If you cannot meet the April 18 tax deadline, you must file a tax extension. Although this does not extend your tax liability, it does extend your deposit by six months. Whatever your reason for filing an extension, it’s free. Take advantage if you think you won’t be able to meet the IRS’ original deadline.