Income Tax Extensions: Payments and Penalties Explained
Filing a tax extension gives you six extra months to file your tax return ― but if you owe taxes, the IRS requires that you still pay by the original due date (April for individuals, March for businesses).
This may seem a bit counterintuitive to many taxpayers. Isn't the whole point of getting a tax extension so that you don't have to pay right away?
Unfortunately, no. A tax extension gives you the time you need to prepare a completely accurate tax return, but the IRS will not wait six months to receive the taxes you owe. If your tax return comes out better than you had expected, you will get a tax refund. If it comes out worse, you will have to pay the additional amount to the IRS. Despite what you may (or may not) owe, you are still required to pay by April 17th (for the 2012 individual filing season).
What If I Don’t Pay?
If you don't pay your income taxes by April 17th and (or your business taxes by March), the IRS will most likely assess a late payment penalty and interest charges which accumulate each month that your taxes go unpaid.
The “late payment penalty” is usually 0.5% of the unpaid taxes, assessed on a monthly basis. For example, if you have $2,000.00 in unpaid taxes, the IRS may charge you $10.00 per month as a late payment penalty: $2,000.00 x 0.5% = $10.00
If you haven't paid your balance by the time your tax return is due, you will begin to accumulate interest on your outstanding balance. This interest is typically assessed at 5.0% annually on your balance.
For example: If you filed a tax extension but did not pay the taxes due, you will be charged 5.0% interest annually (or 0.4% interest monthly) on your outstanding balance. Using numbers from the example above, let’s assume $10.00 per month in late payment penalties. Add to that your monthly interest charge of 0.4%, which is about $8.00 per month in interest: $2,000.00 x 0.4% = $8.00
If you aren’t sure whether you’ll be getting a tax refund or you will owe a tax payment when you ultimately file your return… don’t worry. The FileLater application can help you estimate your income taxes with our simple tax calculator. Just one more reason to file your income tax extension online with FileLater.com.
