4 Tips to File a Tax Extension

Filing a tax extension gives you an additional 6 months to file your taxes, providing ample time for you to navigate through all of your tax paperwork and calculations.

Let's dive into the world of tax extensions, go over the top 4 tips to filing an extension, and explore how this additional time can transform your tax season experience.

1. Filing an Extension Gives You an Extra 6 Months to File Your Taxes.

When you file a tax extension, you get an extra 6 months to file your return. If your tax return is typically due on April 15th, this means your tax return will now be due on October 15th.

2. There is No Penalty for Filing a Tax Extension.

Contrary to common misconceptions, there are no penalties for filing a tax extension. This IRS “hall pass” gives you an additional six months—without incurring the failure-to-file penalty—to compile necessary documents, organize financial information, and ensure a more accurate tax return.

For reference, the IRS imposes penalties for both failing to file and failing to pay your taxes.. The failure-to-file penalty is 5% of the unpaid taxes per month or part thereof, capping at 25%. Conversely, the failure-to-pay penalty is a bit lighter, at 0.5% of the unpaid taxes monthly, also reaching a maximum of 25%. As if that weren't enough, interest compounds daily on the outstanding amount, usually hovering around 3% to 4% annually.

In essence, a tax extension is like pressing the pause button on tax deadlines, granting invaluable time to meticulously prepare and submit your taxes without incurring draconian penalties and interest.

3. You Will Need to Pay Your Taxes When Due.

A common misconception about tax extensions is the belief that filing one absolves you from paying owed taxes on time. However, let’s clear the air—when opting for a tax extension, it's imperative to estimate and settle any taxes owed by the initial filing due date, usually April 15th.

What If You're Owed a Refund?

One other important item to note: if you're due a refund, there's no penalty for not submitting your return on time.

But, here's the catch: you can't actually get that refund unless you file your tax return. Waiting too long to file might mean missing out on that refund you're owed. Usually, the law gives most taxpayers about three years to claim their refunds if they haven't filed their returns.

4. How to File a Tax Extension

Step 1: Meet Form 4868

Accessible directly on the IRS website or on tax preparation software for electronic filing, Form 4868 is the application for extending the deadline to file an individual tax return.

Even if you opt for electronic submission, completing Form 4868 is required, though the online filing process tends to be quicker and more streamlined.

You will need to include some personal information, estimate your tax liability, and submit the form either electronically or via mail by the original tax deadline, typically April 15th.

Step 2: Fill in the Blanks

Completing Form 4868 is straightforward.

Start with the initial section, where you'll input basic personal details—your name, address, Social Security number, and, if applicable, your spouse's information. It's just like filling out any standard form, and the instructions provided are crystal clear.

Next comes estimating your tax liability, which might sound intimidating, but as we’ve already laid out, it's simpler than you think.

The form includes a column where you estimate your tax due. Again, you don't need to be spot-on within the dollar; an estimate within 90% of your actual liability will generally suffice.

As a reminder, you can use resources like tax calculators or your previous year's return as a reference—it's all about getting close!

Step 3: Submit Form 4868

After completing the form, add your signature and the current date, affirming that the info provided is accurate to the best of your knowledge. 

If you're opting for electronic submission, most e-filing platforms make it a breeze.

If you're mailing a physical copy, follow the instructions provided, fill it out neatly, and ensure it's postmarked and sent by the original tax deadline.

Remember, part of requesting a tax extension involves making an estimated payment. The IRS provides various payment methods to settle taxes, each with its own set of costs, benefits, and limitations.

How Do I Pay My Taxes When Filing an Extension?

Below you'll find a comprehensive list of options, so you can choose the most suitable method based on your specific needs.

• IRS Direct Pay – This method is a straightforward and cost-effective option for managing your tax bill. This free service, accessible via the IRS Direct Pay website, allows direct payments from your checking or savings bank account.

  • Cost: Free
  • Pros: Can schedule payments up to 365 days in advance, change or cancel payments until two days before processing, same-day payments, suitable for various tax types.
  • Cons: Limited to two payments in 24 hours, takes up to two business days for payment processing.

• Electronic Funds Withdrawal (EFW) – Tax-prep software often includes an e-pay feature if you're filing via IRS Free File or a similar program. This allows you to authorize a direct debit withdrawal by providing your banking details. Tax preparers who e-file on your behalf can also process payments through EFW upon your request.

  • Cost: Free (Check bank for associated fees)
  • Pros: Can be done online via tax-prep software, scheduled payments until the due date.
  • Cons: Waiting period for incorrect withdrawals, limitations on cancellation or modification post IRS acceptance.

• Electronic Federal Tax Payment System (EFTPS) – This is another IRS online payment service that requires registration before use, taking around five to seven days for enrollment. To sign up, visit the IRS EFTPS website, provide personal and bank details, and wait for a mailed PIN. Once received, log in online, create a password, and authorize bank transactions.

  • Cost: Free
  • Pros: Suitable for all federal taxes, scheduling payments up to a year in advance, same-day payments.
  • Cons: Longer setup time, possible bank fees for payment initiation.

• Debit Card – When using a debit card, the IRS provides the option of utilizing one of three independent payment processors (PayUSAtax, Pay 1040, or ACI Payments). After selecting a processor, payment can be made via phone or online, incurring a processing fee of around $2. Simply visit the website, enter payment details including amount and card information, and the processor will transmit the funds to the IRS.

  • Cost: Between $2.20 and $2.50 per payment (Processor fee)
  • Pros: Online or phone payment, various card options.
  • Cons: Processing fees, non-cancellation, third-party involvement.

• Credit Card – Paying taxes with a credit card is similar to the process for debit card payments, but it incurs fees as a percentage of your owed amount. These fees vary based on the payment type and sum owed, as detailed in the IRS payment processor fee comparison table.

  • Cost: 1.85% to 1.98% of payment + minimum fee (Processor fee)
  • Pros: Similar to debit card payment but with varying fees.
  • Cons: High-interest rates, impact on credit score, non-cancellation, third-party involvement.

• Same-Day Wire Transfer – Certain banks may offer same-day transfer options for IRS payments. To utilize this method, you'll need to complete the IRS's Same-Day Taxpayer Worksheet for each payment you intend to make. Then, take the completed worksheet to your financial institution to schedule the payment.

  • Cost: About $25 (Bank-dependent)
  • Pros: Rapid money transfer.
  • Cons: Bank policies determine fees and timelines, additional paperwork per IRS payment.

• Check, Money Order, or Cashier’s Check – The IRS advises against mailing payments but allows taxpayers to send checks, money orders, or cashier's checks. When making these payments, ensure they are addressed to the U.S. Treasury and contain vital details like your name, address, contact number, Social Security number or employer identification number, tax year, and relevant tax form or notice number. The payment destination may vary depending on whether you've already filed your federal income tax return.

  • Cost: Stamps, mailing, or possible money order fees.
  • Pros: Trackable payments.
  • Cons: Limits on money orders, potential for check bouncing.

• Cash – You might be surprised, but paying taxes with cash is an option. You can initiate this process by visiting the IRS's Pay with Cash at a Retail Partner website, following the given instructions, and providing your information for verification. After receiving confirmation emails, including a payment barcode and instructions, head to the specified retail store. There, have the cashier scan your code, hand over the cash, and receive a receipt and payment confirmation. Stores like Family Dollar, Dollar General, CVS Pharmacy, 7-Eleven, Walgreens, Go Mart, Speedway, Kum & Go, Kwik Trip, and select independent locations participate in this payment method. Additionally, some local IRS offices might accept in-person cash tax payments. To locate these centers and view their services, the IRS provides a TAC look-up tool on their website.

  • Cost: $1.50 to $2.50 per payment
  • Pros: No bank account required.
  • Cons: Payment limitations, need to acquire cash, and certain retailer limits.

• Mobile via IRS2Go – This method is accessible on both iOS and Android devices, allows users to make payments via the mobile version of IRS Direct Pay without any registration. It's a free service to use, although payments with a debit or credit card might incur a fee.

  • Cost: App is free
  • Pros: Mobile-friendly, various tax-related features.
  • Cons: Limited payment options via mobile app.

• IRS Payment Plan or Installment Agreement – If you can't settle your entire tax bill by the due date, the IRS offers payment plans. These plans come in two types: short-term, meant for those who can clear the balance within 180 days, and long-term plans, designed for individuals who require more time to pay off their taxes.

  • Cost: $0 to $225 (Depends on plan and circumstances)
  • Pros: Flexibility in repayment, easy sign-up online.
  • Cons: Accruing interest, fees, and limitations on debt thresholds.

Embrace the Ease of Tax Extensions

In closing, while tax season can feel overwhelming, filing a tax extension can transform the game. It gives you a vital six-month extension, allowing ample time to gather documents and file taxes seamlessly.

Want to e-file your tax extension? Click here to file a tax extension now.