After a one-month delay, Tax Day is here.
But if you haven’t filed your taxes yet – and are unable to complete them by the Monday deadline – don’t fret: There’s still time to file an extension.
If you’re an individual, you can request an extension online by filling out Form 4868 using the IRS’s “Free File” tool. You need to submit the form by May 17, or print the form and mail it to the IRS address for your state, making sure it’s postmarked by May 17. Once you file the extension, you have until Oct. 15, 2021, to file your taxes.
However, there are pros and cons to requesting an extension.
It can give filers more time to thoroughly review their return and take advantage of all of the tax benefits, like various deductions and credits, that are available to them to help them reduce their liability.
By pushing back the filing date, you can also avoid a failure-to-file penalty – an extra 5% per month on the unpaid amount, which can add up to 25% of the tax due. If you file for an extension, you have until Oct. 15 before the penalty starts accruing.
Experts caution that filing for an extension does not mean you can delay paying the government the taxes that are owed.
“Inability to pay is the worst reason to file an extension,” Martin Cole, a tax educator and former accountant, said.
If you owe taxes to the federal government, payments are still due on May 17. The IRS offers some payment plans to individuals who are unable to pay the full amount of taxes they owe. The more you pay by May 17, the less interest and penalty charges you’ll owe later.
When you request an extension, the form requires an estimate of your tax liability. But if you underpay, you’ll be charged the penalty, and if you overpay, you won’t get the extra money back until after you file. To calculate your tax liability, or the amount they owe to the government on their 2020 income, individuals must fill out Form 4868. On Part II of the form, taxpayers will enter their expected tax liability, rounding up to the nearest dollar, and determine which tax bracket they will likely fall under.
If you file for an extension but still don’t pay your taxes, the IRS could charge you a failure-to-pay penalty. It will typically charge you 0.5% of your unpaid taxes for each month you don’t pay, up to 25%.
Of course, if you’re expecting to receive a refund this year and you ask for an extension, you won’t get that money until you’ve filed your return. The sooner you file, the sooner you get your refund.
The IRS has urged Americans who expect to receive money to file a refund as soon as possible. The agency says that it issues about nine out of 10 refunds in less than 21 days.
