If something prevents you from filing your 2021 federal income tax return by April 18 when it's due in 2022 for the 2021 tax year, you can end up having to pay penalties for late filing on top of your tax bill for the year. The good news is that you can file an extension with the IRS and with your state as well to help reduce penalties. This will give you up to six extra months to send in your tax return.
The steps for requesting your tax extension depend on whether you're an individual or business as well as where you live.
Basics of a Tax Extension
Federal and state tax returns are normally due on April 15. The deadline moves to the next business day if that date falls on a holiday or a weekend, as happens in 2022. Some business types, like corporations and partnerships, have an earlier deadline of March 15.
You usually get an additional six months to file your tax return when you ask the IRS or your state for a tax extension. This normally pushes your income tax return due date to Oct. 15, although this deadline is also pushed back in 2022 to Oct. 17.
Certain businesses with the March 15 tax deadline can get extensions until Aug. 15, while trusts and estates get a Sept. 30 deadline. State extension lengths can vary but are often until Oct. 15 for individuals and somewhere between Sept. 15 to Nov. 15 for businesses, depending on the type.
Read more: When Is a Tax Return Considered Filed With the IRS?
Reasons for Requesting an Extension
Reasons for needing an extension can range from tax situations such as delays in receiving important tax documents like W-2 and 1099 forms to having family emergencies that don't leave you with enough time to file your taxes yourself or schedule an appointment with a professional tax preparer. But be aware that the tax extension doesn't change the usual tax payment deadline to avoid the late payment penalty if your reason for wanting an extension involves not having enough money to pay an expected tax bill.
Importance of a Tax Extension
Filing for a tax extension is important to help you avoid, or at least reduce, the tax penalties you'll owe. The IRS charges you a monthly penalty of 5 percent of the tax you owe if you don't file on time and haven't requested an extension, and this can go up to a maximum of 25 percent of your taxes due. Your state may have a similar penalty and maximum as well, although they may have a special program to avoid the penalty under certain circumstances,
Penalties for not filing by your regular due date can especially add up when they're coupled with penalties on unpaid taxes. The monthly penalty for late tax payments is 0.5 percent of the amount owed and can go up to 25 percent, and you usually face interest charges too.
Read more: What Happens If You Can't Make Federal Tax Payments?
Getting an Individual Federal Tax Extension
The IRS recommends that you complete Form 4868 before the initial April tax deadline if you need an extension of time to file your individual federal income tax return. This form also applies to sole proprietors and people who have formed single-member LLCs because these businessowners complete a regular individual income tax return along with some extra forms for reporting business earnings and expenses.
You must fill out two sections on Form 4868. The first part covers identification and asks for your name, address and the Social Security number for you and your spouse, if you're married. The second part asks for 2021 tax information, including your total tax liability, total payments, remaining taxes due and the amount you plan to pay at the time of the extension request. You must also specify whether you're currently abroad or have to file Form 1040-NR.
You can complete the paper form and send it to the IRS using the address designated for your location, or you can e-file your Form 4868 using online tax preparation software. The software should walk you through the specific steps. You don't have to worry about submitting any proof to back up your reason for not filing on time. The IRS typically gives automatic approval to individual tax extensions.
Getting a Business Federal Tax Extension
You can file Form 7004 to get an automatic extension of time to file your business's federal tax return if your business type is a corporation, a multiple-member LLC or a partnership. This form also applies to those who file trust or estate tax returns, as well as several other special returns that are listed on the tax form. This is a two-part form like Form 4868. You can e-file it in many situations or you can send it to the corresponding IRS address by mail.
Provide your full name, identifying number and address on the top portion of Form 7004. Then move on to Part One where there's a list of all the types of returns for which the form applies. You must locate your specific IRS form in the list and enter that code above the list.
You'll answer questions about whether you're a foreign corporation without a U.S. location when you get to the second part, along with whether you use a consolidated return or if you're a partnership or corporation where special regulations apply to you. You must also specify the calendar or tax year for which you need an extension and provide a reason if you're having a short tax year. The IRS asks for how much in taxes you expect to pay, which credits and payments apply to your business and what the balance will be.
Getting a State Tax Extension
Check your state tax agency's website to get an extension to file your state tax return as a business or individual because processes vary widely. Some states, such as Alabama, don't require filing for an extension at all. They automatically extend your state tax return due date if you miss the initial deadline. Others, including Connecticut, require nothing extra as long as you've completed the federal tax extension process. You must complete a state extension request form to report taxes due if you haven't.
Some states have a rule that you must have paid a percentage of your state taxes that are due in order to qualify for an extension and avoid late filing penalties. This is sometimes the case even for automatic extension programs and it can be as much as 90 percent.
You may have phone, online and mail options to file a state form for an extension. do so. You often have to submit a copy of federal Form 4868 at the time of filing your state return.
Handling Issues With Paying Owed Taxes
You might still have concerns about how to pay your taxes because those are due on time despite the later filing deadline. You have some options if you can't afford to pay in full in April.
- Credit card or loan: Depending on the amount of tax due and the interest rate on your credit card or loan, you could pay your taxes by credit card or take out a personal loan. You could then make payments to the creditor rather than have a debt with the IRS or your state's tax agency. This can be especially convenient if you just need a little more time to get the money for your taxes, and you can easily make your tax payment online.
- Delay of tax collection: The IRS may give you a temporary deferral to prevent collections actions if you've faced a substantial financial setback and have documentation to back it up. The IRS requests information about your living expenses, possessions and income to make their determination. Interest and penalties usually still apply, and the IRS expects you to pay your taxes as soon as you can afford to.
- IRS payment plans: The IRS offers installment agreements with different terms based on the tax amount due, whether you need just a few months or as long as several years to pay off your federal tax debt. Short-term plans of up to four months require no setup fee, while long-term agreements have a fee that depends on the method used for the request, your income level and your decision to set up or not set up automatic payments using your bank account. You'll pay monthly until you've paid off your tax debt and the interest and penalties that add up.
- IRS offer in compromise: You could consider making an offer in compromise if your goal is to pay less than the amount the IRS says you owe. You'll have to provide financial information that can back up your claim that you can't afford to pay the full amount due. You can make a lump sum payment with the request and pay 20 percent at the time of submission, or you can send the IRS a smaller payment and note a desire to make monthly payments until the offer amount is paid. The IRS evaluates the offer, notifies you of a decision and gives you the chance to appeal, if necessary.
- State payment plans: Like the IRS, your state tax agency may have a payment plan option where you may pay a small fee to set up a short- or long-term arrangement with interest and penalties likely applicable.
Read more: IRS Definition of Financial Hardship
Seeking Tax Penalty Relief
You can consider the IRS penalty relief options if you end up facing penalties due to not filing your taxes on time or at all, or if you're unable to pay your taxes on time, But you can expect this to be a more difficult process than requesting an extension. As to qualifying, you'll must fall under one of three criteria and be able to prove that something hindered you from filing or paying your taxes:
- You have a reasonable cause such as a natural disaster, death or illness that has affected your household.
- You face tax penalties for the first time and have shown a good history of compliance in the past.
- A statutory exception applies to you, such as facing a penalty due to the IRS providing you with incorrect information.
Depending on the situation, you may have to complete a form, provide documentation or write a letter to the IRS. Your penalty notice should have a phone number to call so you can speak with an IRS worker about seeking relief. You can check with your state to find out if they offer any penalty relief programs as well. You might also want to consult a tax professional.
Read More: What If You Miss a Year Filing Your Taxes?
- IRS: IRS Form 4868
- eFile: IRS Tax Extension Form 4868
- IRS: Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns
- Alabama Department of Revenue: Individual Income Tax Filing Information
- Connecticut State Department of Revenue Services: Filing for an Extension of Time to File
- IRS: Penalty Relief
- IRS: IRS Payment Options
- IRS: Apply Online for a Payment Plan
- IRS: Offer in Compromise
- IRS: Topic No. 304 Extensions of Time to File Your Tax Return
- California Franchise Tax Board: Extension to File
- IRS: Information About Your Notice, Penalty and Interest
- TaxAct: Tax Calendar Federal Due Dates
- OLT: Learn More About Your State Extensions!
- IRS: 2022 Tax Filing Season Begins Jan. 24; IRS Outlines Refund Timing and What to Expect in Advance of April 18 Tax Deadline
- IRS: Failure to Pay Penalty
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.