Way back in March when the Covid-19 pandemic hit the world, the IRS declared that the federal tax filing deadline would be extended to July 15. This gave taxpayers an automatic 3–month extension.
Taxpayers not ready to file by July 15th can apply for an extension until October 15th. Please remember that this is not an extension to pay, it is simply an extension to file. Taxpayers are still required to pay their estimated tax by July 15th deadline, otherwise the IRS might charge a late payment penalty.
This whole process can seem rather confusing. There are plenty of online (and essentially free) tax estimation calculators that can help the taxpayer here, and the Robert Hall team is more than happy to assist too.
If you are unable to file by July 15, you should request an extension. A filing extension allows you to file by October 15, but only if you formally request to do so.
Keep in mind, however, that estimated tax payment is still due in full by July 15. If the payment is not made, you might accrue interest and/or penalties for any balance owed. That’s why the taxpayer should pay as much as they can by July 15, even if they can’t pay the figure in full. Remember that these deadlines only apply to federal taxes; state tax filing deadlines may vary.
Remember that the penalties for not e-filing or filing a tax return or a tax extension are higher than not paying taxes owed. For example, the penalty for not filing on time is 5%/month of the tax amount owed, plus interest, versus a late payment penalty of 0.5%/month, plus interest.
What Is the Penalty for Filing a Tax Return Late?
If you file your tax return after July 15th deadline but did not get an extension, then you will be assessed a penalty of 5% of your balance due every month you will be late (for up to five months).
If you file more than 60 days late, your minimum failure-to-file penalty will be 100% of your unpaid taxes or $354 whichever is less.
What Is the Penalty for Paying Taxes Owed Late?
If you do not pay the full amount you owe by the tax deadline you will be assessed a penalty of 0.5% of your balance due per month or part of a month after the July 15th deadline. The amount of your failure-to-pay penalty will not exceed 25% of your back taxes.
If you do not pay your full balance due, you will also owe interest on the unpaid amount equal to 3% a year paid on quarterly basis.
How to File for an Extension with the IRS
There are two ways the taxpayer can go about this.
Using IRS.gov
Going on to the IRS.gov website is the preferred method. Once there, the taxpayer can complete Form 4868 through their Free File, tax professional, or tax software. If you would like, our team at Robert Hall can help apply for your extension free of cost.
Submitting an Electronic Payment
Alternatively, the taxpayer can use Direct Pay, a debit or credit card, digital wallet, or the Electronic Federal Tax Payment System and choose “Form 4868” as the payment type. The file extension will then be processed along with the electronic tax payment.
Our team at Robert Hall, can either guide you to make the electronic payment or we can print a payment voucher that can be used to make the payment via check by mail.
Whichever method you select, here are some more detailed steps about filing for an extension:
If the taxpayer has prepared their taxes using tax filing software or via a tax-preparer, they’ll need to download and file IRS Form 4868 to formally request an extension. Individual tax filers may also request an extension via the IRS’ E-File service.
You must roughly estimate the tax figure owed. If you do not know the precise amount but will need to submit an estimate of taxes owed when they file for an extension. They should consider using a free tax estimate calculator to aid in the calculation.
You need to then establish how much you can afford to pay now (preferably before the July 15 filing date) and submit payment as soon as possible. If you have not paid the tax bill before July 15 then you are most likely subject to interest and penalties.
The taxpayer may apply for an Instalment Payment Plan if they cannot afford to pay any remaining balance in one lump sum. A short-term payment plan (lasting 120 days or less) is free to set-up; long-term plans carry a $31 set-up fee.
Monthly payments can be made via debit or credit card, direct debit from your checking account, or money order.
Finally, the taxpayer must not forget to submit completed taxes by the October 15 extension. If their actual taxes differ from the estimated ones, you will have to file paperwork to amend the Instalment Payment Plan or submit a payment for any difference.
If you are going to be filing for an extension, we highly recommend working with our tax team at Robert Hall. If you decide to have us prepare and file your taxes on October 15th, we will help you file for the extension for free today.