Taxes

How Filing for a Tax Extension Works

By Chris Duderstadt

April 22, 2024

How Filing for a Tax Extension Works

Key Points – How Filing for a Tax Extension Works

  • What Does It Mean to File a Tax Extension?
  • The Big Misconception About Filing a Tax Extension
  • The Deadline for Filing a Tax Extension
  • How to File a Tax Extension?
  • 5 Minutes to Read

What Does It Mean to File a Tax Extension?

The Internal Revenue Service projected that 19 million taxpayers would file for an automatic extension on their 2023 taxes.1 But what does it mean to file a tax extension? There can be a lot of confusion about tax extensions, so even though Tax Day is behind us, we want to make sure that everyone is crystal clear about how they work.

The deadline to file taxes for most U.S. taxpayers is April 15 each year. There are a few rare exceptions. For example, Tax Day fell on April 17 this year for Massachusetts and Maine taxpayers. That’s because those states observe Patriots’ Day, which fell on April 15, and Emancipation Day followed on April 16. But by and large, the IRS is firm that April 15 is the deadline to file and pay taxes.

But what about those 19 million taxpayers that the IRS anticipated to file a tax extension? Doesn’t that mean they can file and pay their taxes after April 15? Not exactly. Filing for a tax extension gives taxpayers until October 15 to file their return. However, filing for a tax extension doesn’t permit taxpayers more time to pay their taxes.2 The IRS requires taxpayers to estimate and pay their taxes by April 15. Potential penalties can ensue for those who aren’t compliant.

When Is the Deadline to File a Tax Extension and What Do You Need to File One?

If an individual taxpayer finds themselves in a situation where they think they need to file a tax extension, the request must be submitted by April 15. The form that individuals need to file to request for an automatic six-month extension to file their return is File Form 4868.3 There are a certain exceptions for the following individuals:

If you’re a business owner and looking to request an extension for your business, you’ll need to file Form 7004.8 And if you’re a corporation owner who anticipates a net operating loss carryback, you’ll need to file Form 1138 to request an extension.9

E-Filing an Extension via IRS Free File

Regardless of income, taxpayers also have the option of utilizing IRS Free File to file an extension electronically.10 Still, you’re required to estimate and pay any taxes owed by April 15 if you plan to use IRS Free File to request an extension.

Pros and Cons of Filing for a Tax Extension

There is an obvious pro and an obvious con to filing for an extension. The obvious pro is that it allows you more time to file your return. There can be a variety of reasons why it can make sense to request for an extension: illness, technical issues if you’re trying to file electronically, misplacing your return from the previous tax year, etc.

That’s why it’s important to avoid waiting until the last minute to file your taxes. But there’s always the option of filing an extension if those things do come up. If you do wait until the last minute, keep in mind that you’re not only creating more financial stress for yourself. You’re also putting more pressure on whoever is preparing your taxes. That can lead to mistakes on your return and missed tax planning opportunities. Filing an extension can help ensure that your return is accurate.

The obvious con to filing an extension is that you’re prolonging emotional toll that can coincide with filing your taxes. Just because you file an extension doesn’t mean that you’ll be able to get out of gathering your tax documents and other pertinent information needs to file your return. And again, you’re still required to pay your taxes by April 15, even if you request for an extension to file your return by October 15.

What If You Missed the April 15 Deadline to File an Extension?

If you didn’t file your return or an extension by April 15, that doesn’t mean that you should wait to complete Form 1040 or pay any taxes that are owed.11 Paying your taxes as soon as possible will help limit the amount you’ll owe to the IRS in penalties and interest.

According to the IRS, “interest will accrue on any unpaid tax from the due date of the return until the date of payment in full” if you miss the Tax Day deadline.12 For the second quarter of 2024, that interest rate on unpaid tax is 8%.13 That’s calculated by taking the federal short-term and adding 3%. On top of that, interest will compound each day.

Penalties, Penalties, Penalties

Along with paying interest on unpaid tax, there are potential penalties for both paying and filing after April 15. The “failure to file” penalty is 5% of the unpaid taxes for every month or partial month until you’ve paid your taxes in full.14 There are maximum and minimum failure-to-file penalties. The maximum penalty is 25%. If your return is 60-plus days late, there are two potential minimum penalties. It will be $485 (for 2023 returns filed in 2024) or 100% of the total tax you own—whichever is less.

There is also a “failure to pay” penalty.15 The penalty is 0.5% on late payments of any unpaid balance for each month or partial month. The failure to pay penalty also won’t exceed 25%. However, the 0.5% penalty increases to 1% after 10 days. If you receive notices from the IRS for failure to pay and failure to file penalties, the failure to file penalty would be 4.5% and the failure to pay penalty would be 0.5%.

The Main Takeaway

So, as you can see, the penalties and interest can add up in a hurry. The easiest way to avoid those is to pay and file your taxes prior to April 15. And if you’re unable to file by April 15, make sure to pay any taxes owed and request an extension to file your taxes. If you have any questions about how to file a tax extension or potential tax planning opportunities that might be available to you, start a conversation with our team below.

Schedule a Meeting

While the 2023 tax season is in the books (unless you filed an extension), it’s important to have a forward-looking tax plan that can help you reduce taxes over your lifetime rather than on a year-by-year basis. The 2024 tax brackets have already been released, and some potential big changes in the tax code are on the horizon in 2026. Parts of the Tax Cuts and Jobs Act—including the current, lower tax rates—are scheduled to sunset on December 31, 2025.16 We’re ready to help you plan for that and will continue to educate you about how taxes play a huge role in your overall financial plan.

Resources Mentioned in This Article

Downloads

Other Sources

[1] https://www.irs.gov/newsroom/irsgov-offers-last-minute-filing-tips-resources-to-help-taxpayers-who-still-need-to-file-before-april-15-special-saturday-hours-in-70-locations

[2] https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return

[3] https://www.irs.gov/forms-pubs/about-form-4868

[4] https://www.irs.gov/publications/p54

[5] https://www.irs.gov/newsroom/extension-of-deadlines-combat-zone-service

[6] https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

[7] https://www.irs.gov/instructions/i1065sk1

[8] https://www.irs.gov/forms-pubs/about-form-7004

[9] https://www.irs.gov/forms-pubs/about-form-1138

[10] https://www.irs.gov/irs-free-file-do-your-taxes-for-free

[11] https://www.irs.gov/forms-pubs/about-form-1040

[12] https://www.irs.gov/taxtopics/tc653#

[13] https://www.irs.gov/payments/quarterly-interest-rates

[14] https://www.irs.gov/payments/failure-to-file-penalty

[15] https://www.irs.gov/payments/failure-to-pay-penalty

[16] https://taxfoundation.org/blog/tcja-expiring-means-for-you/

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