Tax Extension Glossary
Let's face it, when it comes to filing taxes, it can feel like there's a whole new language to learn. In an effort to make tax extensions a little easier to understand, FileLater has put together a list of common tax terms and their definitions.
We all probably know this one: April 15 is Tax Day. By this date, your individual income tax return must be filed and your taxes paid to the Internal Revenue Service (IRS). Although there is no way to extend the deadline to pay the taxes you owe, you can extend the amount of time you have to file your tax paperwork if you file a tax extension.
Taxpayers may file their return based on the “calendar year” or the “fiscal year.” The calendar year refers to a one-year period, beginning January 1st and ending on December 31st. Businesses that follow the calendar year must file their tax return (or tax extension) by March 15.
By now, you've probably heard a lot about "e-file" (a.k.a. electronic filing). In an effort to streamline the tax filing process and reduce the amount of paper used for tax forms, the IRS created the e-file system so taxpayers can submit forms (such as Tax Form 4868 or Tax Form 7004) to the IRS electronically. E-filing is fast and secure, and can be done from your personal computer, tablet, or smartphone.
Electronic Federal Tax Payment System (EFTPS)
EFTPS is a method for making tax payments, if you don't want to write a check or pay by credit card. This option is offered by the U.S. Department of the Treasury and allows taxpayers to make payments either online or via telephone.
Electronic Funds Withdrawal (EFW)
EFW is a way to electronically pay the IRS the taxes you owe, thus avoiding credit card fees or the need to mail a paper check. EFW allows the IRS to immediately withdraw the amount from your bank account. To use the EFW option, you must provide your bank information (account number and routing number), the amount you are paying, and the withdrawal date. The IRS will then deduct the amount from your bank account on the date scheduled. Make sure to use an Authorized IRS e-file Provider, such as FileLater, so your information remains confidential and secure.
Taxpayers may elect to file their returns based on the “fiscal year” of the “calendar year.” Those who do not file based on the calendar year (January 1st – December 31st) are considered Fiscal Year (FY) filers for tax purposes. Note that this usually applies to corporations and not individual taxpayers. The fiscal year is divided into four quarters: the First Quarter (October, November, December), the Second Quarter (January, February, March), the Third Quarter (April, May, June), and the Fourth Quarter (July, August, September).
IRS Tax Form 1040 (U.S. Individual Income Tax Return) is the standard IRS form that individual taxpayers use to file their annual personal income taxes. Form 1040 is also known as “the long form” because it’s more extensive than the shorter 1040A and 1040EZ tax forms. The due date for Tax Form 1040 is generally April 15th.
IRS Tax Form 1040A (U.S. Individual Income Tax Return), also known as “the short form,” is a simplified version of Form 1040 for reporting personal income taxes. To be eligible to use Form 1040A, there are specific restrictions regarding your income level and tax deductions. For example, you cannot itemize deductions or own a business, and your taxable income must be below a certain level.
IRS Tax Form 1040EZ (Income Tax Return for Single and Joint Filers With No Dependents) is the shortest Federal individual income tax return. Form 1040EZ is an alternative to Forms 1040 and 1040A, and it offers a faster and easier way to file personal income taxes. Tax Form 1040EZ is designed for taxpayers with uncomplicated tax situations. In order to qualify to use this tax form, you must file as “single” or “married filing jointly,” claim no dependents, and have taxable income below a certain level (among other requirements set forth by the IRS).
Form 1040NR and Form 1040NR-EZ
IRS Tax Form 1040NR (U.S. Nonresident Alien Income Tax Return) is intended for individuals who are not U.S. citizens. Note that you must determine whether you are considered a “resident alien” or “nonresident alien” for tax purposes. IRS Tax Form 1040NR-EZ (U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents) is the simpler version of this form, designed for individuals with less complicated tax situations. If you were a nonresident alien during the previous tax year and you earned any income from the United States, you must file one of these tax forms. If you qualify for either tax form and you want to file a tax extension, simply check Box 9 on Tax Form 4868.
IRS Tax Form 4868 (Application for Automatic Extension of Time To File U.S. Individual Income Tax Return) is the form that you should fill-out and submit to the IRS if you want to receive an extra 6 months to file your annual income tax return. It’s important to note that a tax extension does not extend the time you have to pay the tax that you owe. If you owe any tax, you must still make your payment by the original filing deadline (April 15) or risk facing IRS penalties and late fees.
IRS Tax Form 7004 (Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns) is the form that a business must submit if it wants to receive an extension of time to file its annual tax return. Depending on the type of business entity, a 5- or 6-month tax extension can be requested. Like Tax Form 4868 (explained above), Form 7004 does not grant extra time to pay any taxes owed by the original deadline (March 15 for most businesses). Businesses that want a tax extension must submit Tax Form 7004 to extend their filing deadline ― this includes C-corporations, S-corporations, multi-member LLCs, partnerships, trusts, and estates. To save on time and paperwork, businesses can e-File Tax Form 7004 directly to the IRS.
Individual Taxpayer Identification Number (ITIN)
If you are a nonresident or resident alien, and you do not have a Social Security Number (SSN) — and/or you are not eligible to get a Social Security Number — you must apply for an ITIN to file income taxes. Although an ITIN is not required to file for a tax extension (IRS Tax Form 4868), you will need an ITIN to file your income tax return. If you already have an ITIN, enter it wherever your Social Security Number is requested. For details on how to apply for an ITIN, see Tax Form W-7 (Application for IRS Individual Taxpayer Identification Number) and its Instructions. If you are in the process of applying for an ITIN, enter “ITIN TO BE REQUESTED” on the tax form wherever your Social Security Number is requested.
Late Filing Penalty
Also called the "failure to file" penalty, this fee is charged by the IRS if you owe tax and you don't file on time. The late filing penalty is usually 5% of the unpaid tax for each month (or part of a month) that your tax return is overdue, up to a maximum of 5 months. If your tax return is more than 60 days late, the minimum penalty assessed is $135 or 100% the unpaid tax, whichever is less.
Late Payment Penalty
Also called the "failure to pay" penalty, this fee is charged by the IRS if you file a return but don't pay your taxes on time. The late payment penalty is usually 0.5% of the unpaid tax for each month (or part of a month) that your tax balance remains outstanding, up to a maximum of 25%. If your tax is still unpaid 10 days after the IRS issues a “Notice of Intent to Levy,” the late payment penalty increases to 1.0%. On the other hand, if you filed on time and you set up an Installment Agreement with the IRS, the late payment penalty decreases to 0.25%.
Individual taxpayers who successfully request a six-month extension from April 15th have until this date to submit their tax return.
Out of Country
If you are out of the country on the due date of your tax return and you are a U.S. citizen or resident, you are allowed two extra months to file your tax return and pay any taxes due. For most individuals, this moves the deadline to June 15. If you meet the IRS requirements, this tax extension is granted to you without your having to file an official request of any sort. If you need an additional four months to file your tax return (extending your filing date to October), then you must submit Tax Form 4868 and check the box on Line 8.
In general, this is the deadline for corporations to file their annual Federal tax returns.
Business taxpayers who successfully request a 5- or 6-month extension have until this date to submit their tax return.
Social Security Number (SSN)
An SSN is an identification number that is assigned to each United States citizen. Besides your name and address, it is one of the few pieces of information that you must provide when requesting a tax extension.
Substantial Presence Test
According to the IRS, you are considered a U.S. resident if you meet the “Substantial Presence Test.” You pass this test if you were physically present in the United States for at least 31 days during the current tax year, and at least 183 days during the 3-year period that includes the current year and the 2 years immediately before that.
The term “tax liability” refers to the total amount of tax that an individual or business must pay the IRS for a given tax year. In other words, it is the total amount of tax that you owe before any payments (i.e. Federal income tax withheld or estimated tax payments).