Legal & Regulatory Tax Information Archives

Income Tax Extensions: Payments and Penalties Explained

Filing a tax extension gives you six extra months to file your tax return (5 months for certain business entities) But if you owe taxes, the IRS requires that you still pay by the original due date of your return (typically April 17 for individuals and March 15 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 may get a tax refund. If it comes out worse than expected, you will have to pay the additional tax due to the IRS. Despite what you may or may not owe, you are still required to pay by the original filing deadline.

What If I Don’t Pay?

If you don’t pay your income taxes by April 17 (or your business taxes by March 15), 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 0.5% of the unpaid taxes, assessed on a monthly basis, up to a maximum of 25%. 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 (because $2,000.00 x 0.5% = $10.00).

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%.

Keep in mind, you may not be subject to a late payment penalty if you filed a tax extension on time (by the original deadline of your return) and paid at least 90% of your tax liability with your extension. At FileLater.com, you can file your tax extension online and electronically pay your tax due using our IRS-approved e-file system.

The IRS also charges interest on any outstanding tax balance. Interest is compounded daily and accrues starting on the due date of your tax return until the day you pay your taxes. The interest rate is determined on a quarterly basis. Currently, the interest rate is equivalent to the Federal short-term rate plus 3%.

Finally, there is a late filing penalty (also called the failure-to-file penalty) which is imposed if you owe tax to the IRS and you don’t file on time. This fee is 5% of the unpaid taxes, assessed on a monthly basis, up to a maximum of 5 months. If your tax return is more than 60 days late, the minimum late filing penalty is $135 or 100% of the tax due, whichever is less.

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 system can help you estimate your income taxes with our simple tax calculator. It’s just one more reason to file your income tax extension online at FileLater.com.

State Tax Extensions

Getting a federal income tax extension for your federal income taxes is simple ― but what about your state income taxes? Can you get a tax extension from the state as well?

In general, it depends on which state you live and work in. Every state has different rules and regulations about personal taxes and tax extensions. Some states, like Texas and Tennessee, do not levy individual income taxes at all (although you may still owe taxes on business or investment income). Other states, like California and Massachusetts, have high personal taxes and business taxes ― so a state tax extension can be especially useful.

How Do State Income Tax Extensions Work?

Each state is different regarding their tax extension rules. For example, Colorado and California, automatically grant a six-month extension to any taxpayer and no paperwork is required. (Note however, similar to a federal tax extension, you must still pay any tax due by the original filing date).

Arizona is a state that will automatically accept an IRS tax extension if you don’t owe taxes ― but you are required to fill out a state-specific tax form if you do owe taxes. Wisconsin, on the other hand, automatically grants a state tax extension if you file for the federal extension ― -provided that you attach IRS Form 4868 (personal tax extension) or IRS Form 7004 (business tax extension) to your Wisconsin tax return. Finally, Pennsylvania requires its residents to submit their tax extension requests by paper mail — and Alabama allows its taxpayers to file their requests online.

State Personal Income Tax Extensions

Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico

State Business Income Tax Extensions

Federal Tax Extensions

Need more time to file? File an IRS tax extension and you can wait until October 15th to file your income tax return, with no penalties whatsoever.

An IRS tax extension allows you to put-off tax day for six additional months. The IRS will gladly give you this extra time to file, even if you owe taxes. As long as you file your tax extension on or before the original filing deadline (typically April 15th) and then file your return by October 15th, you will not be penalized.

It’s important to note that filing a tax extension is not a free pass to ignore your taxes. Rather, it’s an agreement with the IRS that you will file your taxes within the six extra months you’ve been granted. Once you file the extension, it’s recommended that you take the proper steps to file your actual return. Once October 15th rolls around, there is absolutely no delaying your taxes any further.

Also remember this: a tax extension only gives you more time to file, not more time to pay. If you owe taxes, you must still send your payment to the IRS by the original due date of your return (usually April 15th). Keep this in mind when you are filing for a tax extension using IRS Tax Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return), because you must report any balance due in Part II of that form. Your payment should be submitted with your 4868 Tax Form ― otherwise, you will be charged interest on any amount that not paid by the original deadline.

Who Can Get a Tax Extension?

Almost everyone qualifies to file for an income tax extension. The IRS doesn’t ask you to submit any explanation as to why you want or need an extension. Almost all rejected extensions are the result of submitting incorrect information, such as a name or Social Security Number that does not match IRS records.

Personal IRS Tax Extensions

You will need to obtain a copy of IRS Tax Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return). This one-page form will help you get a six month automatic extension to file your taxes. You can call the IRS to request this form or print it out online. If you are working with a tax professional, they can supply you with a tax extension form as well as any others that you may need.

Fill out Tax Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) and submit it to the IRS by the due date, which is April 15. Note that Form 4868 can be filed electronically or by paper mail.

It would be in your best interest to pay in full, but sometimes this is not possible. Again, you are not buying yourself more time to pay your taxes when you file for a tax extension. The longer you wait to pay, the more you will owe in late fees.

While filling out Tax Form 4868 you will need to provide personal information such as your Social Security number, address, and an estimate of the amount of tax that you owe. Since you are not filing a complete return, you can estimate your tax liability and then pay that amount.

If you are due a tax refund you do not need to file a tax extension. There is no penalty for filing late unless you owe the IRS additional money.

Business IRS Tax Extensions

Corporations, partnerships, REMICs, and certain trusts that need extra time to file may request a 5- or 6-month tax extension using IRS Form 7004 (Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns). Note that this is only an extension of time to file and any tax owed must still be paid by the original due date.

IRS Tax Form 7004 is the Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. Form 7004 has three parts ― depending on the type of tax extension being requested, you must complete Part I or Part II, and everyone must complete Part III.

Corporations, including S-Corporations, operating on the calendar year for tax purposes must file for their tax extension by 11:59PM on the 15th day of the 3rd month following the close of their tax year (typically March 15). Partnerships, LLCs, and sole proprietorships have until 11:59PM on the due date of their personal income tax return (April 15) to file for their tax extension.

Corporations, multi-member LLCs, and partnerships operating on the calendar year for tax purposes are given an extended tax deadline of 5 months (generally to September 15). Sole proprietorships and single-member LLCs are given an extended due date of 6 months (October 15).

For most business types, you will simply need your Tax-ID number (EIN) to file your business tax extension (IRS Tax Form 7004). If you are filing for a single member LLC business, you should file for a personal tax extension (IRS Tax Form 4868) and use your Social Security Number, rather than a Tax-ID (EIN).

Single member LLCs only need to file for a personal tax extension (IRS Tax Form 4868), which will extend both the personal and business tax deadline, since your LLC is a “pass-through entity” and your business tax return is part of your 1040 personal tax return on Schedule C.

Sole proprietors have their business tax returns flow directly to their personal tax return as a Schedule C. Therefore, you should only submit a personal tax extension, which will extend the filing deadline for both your business as well as your personal income taxes.