Filing a Federal Tax Return is often a time-consuming process requiring collecting significant amounts of information, and sometimes you must wait for forms from banks, brokerages, ex-spouses or other people. And sometimes due to circumstances, it is impossible to file your taxes by the April 15 deadline. So, what do you do, and are there penalties?
Automatic Extension of Time to File
The first thing to do when you realize that you will not be able to meet the April 15 deadline is to file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form guarantees you an additional six months to get all your information together and file your return. However, it does not relieve you of any interest due if you owe taxes. So, when you file Form 4868, you need to make your best guess as to how much tax you will end up owing and pay any additional taxes due in order to eliminate that additional interest.
Note: Due to the coronavirus pandemic, tax filers were given a new filing deadline for the 2019 tax year. The new due date became July 15th, 2020. If you filed for an extension, however, the due date of Oct. 15th didn't change.
Read More: IRS Penalties for Filing an Extension
Late Payment Penalty
If you pay your taxes late, even if you file Form 4868, you might still be liable for a penalty if you do not pay estimated taxes properly. This is one half of 1 percent per month that the taxes are due. This is in addition to the interest due.
The IRS states, you will owe interest no matter whether you have a good reason for not paying on time, but it likely won't charge you a late payment penalty if you can prove you had a good reason for your lateness. However, you have to have paid at least 90 percent of the tax due in order to be eligible for the exemption.
Late-Filing Penalty Amounts
In addition to interest and late payment penalties, there also is a late-filing penalty. It is usually charged if your return is filed after the due date (including extensions). This penalty is fairly stiff at 5 percent per month up to a total of 25 percent of the total tax due. If your return is more than 60 days late, the minimum penalty is $435 or the balance of the tax due on your return.
Since the late filing penalty is often more than the late payment penalty, you'll want to work quickly to get that tax return filed, even if you can't afford to pay the taxes owed. You can always call an IRS agent and request a payment plan to catch up on the amount due.
U.S. Citizens Abroad
U.S. Citizens living abroad are automatically entitled to an additional two months in order to file their taxes, possibly to compensate for the additional time it takes to get the necessary information in some parts of the world. You do not need to file an additional form if you qualify for this extension; you simply attach a note to your return. However, if you need additional time beyond the two months, you can only get an additional four months by using Form 4868 listed above.
Getting Tax Refunds
When you finally have time to sit down and plug in the numbers on your 1040, you may find out that you're actually due a refund. CNBC reports that individuals who are due a refund are exempt from any penalties. They do point out that it's best to make filing a priority, as even though you won't have to pay a penalty, the IRS will still be holding your money. That's money you could be growing via interest in a savings account or investing in a stock.
- IRS.gov: Common Penalties for Individuals
- IRS.gov: About Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
- CNBC: Today is the Tax Deadline — Here’s What Happens if You Don’t File
- IRS. "Tax Day Now July 15: Treasury, IRS Extend Filing Deadline and Federal Tax Payments Regardless of Amount Owed." Accessed June 12, 2020.
- IRS. "Collection Procedural Questions 3." Accessed June 12, 2020.
- IRS. "Common Penalties for Individuals." Accessed June 12, 2020.
- IRS. "Important Facts about Filing Late and Paying Penalties." Accessed June 12, 2020.
- IRS. "For Those Who Missed the Tax-Filing deadline, IRS Says File Now to Avoid Bigger Bill." Accessed June 12, 2020.
- IRS. "Interest Rates Remain the Same for the Second Quarter of 2020." Accessed June 12, 2020.
- IRS. "Interest for Individuals." Accessed June 12, 2020.
- IRS. "Interest Rates Decrease for the Third Quarter of 2020." Accessed June 12, 2020.
- IRS. "Extension of Time To File Your Tax Return." Accessed June 12, 2020.
- IRS. "Topic No. 304 Extensions of Time to File Your Tax Return." Accessed June 12, 2020.
- IRS. "Penalty Relief Due to First Time Penalty Abatement or Other Administrative Waiver." Accessed June 12, 2020.
Tim McMahon began publishing the "Moore Inflation Predictor" and "Financial Trend Forecaster" newsletter in 1995 and has published it every month since. He is also the editor of InflationData.com and the author of "Healthy Tongue Secrets," a book on dealing with problems like thrush and geographic tongue. He holds a Bachelor of Science in engineering management from Clarkson University.