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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 asks that you still pay them by April 15 (or March 15 for most businesses).
This may seem a bit counterintuitive to many taxpayers. Isn't the whole point of getting an extension so you don't have to pay right away?
Nope. Extensions give you the time you need to prepare a completely accurate tax return--but the government doesn't want to wait up to six months to get the taxes you owe. If your return comes out better than you expected, you'll get a refund, and if it comes out worse, you'll have to pay extra. But whatever you owe on March or April 15, you have to pay on time.
And What if I Don't?
If you don't pay your income taxes by April 15 and/or your business taxes by March 15, you could potentially be assessed with late payment penalty and interest that accumulate each month your taxes remain unpaid. We’ll help explain those below:
The late payment penalty is usually 0.5% of unpaid taxes, assessed per month. For example, if you have $2,000 of unpaid taxes, the IRS may charge you $10 per month as a late payment penalty:
$2,000 x 0.5% = $10
If you haven't paid your balance by the time your tax return is due, you'll begin to accumulate interest on your outstanding balance. This interest is typically 5% annually on your balance.
For example: If you filed a tax extension but not any taxes due, you will pay 5% interest annually (or 0.4% interest monthly) on your outstanding tax balance. Using the example above, you will pay $10 per month in penalty payments. Additionally, you will be charged 0.4% interest monthly, which is about $8 per month in interest.
$2000 x 0.4% = $8
If you aren’t sure whether you’re getting a refund or will owe a tax payment when you ultimately file your income tax return, don’t worry, our application can help you estimate with our simple tax calculator… just one more reason to file your income tax extension online with FileLater.com.
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FileLater provides a secure online solution for individuals and businesses seeking to e-file an IRS income tax extension. FileLater is an authorized IRS e-file