April 15 is just a few days away. If you won’t be able to mail and postmark your taxes by April 15, you may need to file for an extension. You can request an extension if you need extra time to file your tax return. However, it’s important to note that an extension only gives you more time to file your return; it does NOT mean you have an extension to pay.
All taxes that you owe must be paid by the original deadline. Otherwise, you may be charged a late fee along with an interest. If you fail to file your return on time, you will be penalized with a Failure to File penalty unless you apply for an extension.
Failure to Pay Penalty
A Failure to Pay penalty is assessed on the balance of taxes owed after April 15. The penalty for unpaid taxes incurs a monthly fee of 0.5%, with a maximum penalty of 25% of the unpaid taxes, regardless of whether you filed an extension.
Failure to File Penalty
A Failure to File penalty is assessed based on how late you file and the amount of taxes owed on the due date. This fee is assessed if you do not file your tax return AND you do not request an extension. This penalty is calculated at 5% of the unpaid balance per month and maxes out at 25%.
Both of these penalties may be assessed for the same months. However, the combined penalties will be at most 5% of the taxes owed per month.
In addition to these penalties, the IRS charges interest on past-due amounts. This interest is charged on the taxes owed, the penalty, and the accumulated interest. The more you owe, the higher the interest will be. Interest begins on the day the tax is late and continues until the tax, along with interest and penalties, is paid in full.
To avoid getting in trouble and paying penalties:
- File your tax return on time and pay any tax owed by the due date.
- If you cannot file your taxes by the deadline, you can avoid a Failure to File penalty by requesting an extension.
a. The extension must be filed by the due date.
b. The extension gives you to October 15 to file.
c. File form 4868 or use IRS Free File to apply for an extension.
d. You need to enter an estimation of your 2023 tax liability and the amount of
payments you made in 2023 through withholdings and estimated tax payments.
e. Include payment for the balance to avoid late penalties and interest. If you cannot pay the balance in full, pay as much as possible.
f. Estimating high and overpaying is much better than subjecting yourself to late penalties and interest.
g. It is much better to estimate high and overpay than subject yourself to late penalties and interest. - If you are unable to pay the balance when you file the extension, you should pay as much as you can and apply for a payment plan that will allow you to pay the remaining balance over time.
a. Apply for a short-term plan if you can pay your taxes owed within 180 days.
b. Apply for a long-term plan to make monthly payments over some time greater than 6 months.
c. Set-up fees are applied to long-term plans; this fee is significantly lower if payments will be made by direct deposit.
d. If payments are made by credit card, a fee will be charged.
e. You may be able to apply for a payment plan online, depending on how much you owe. Online setup requires a computer using a supported browser and a cell phone that receives text messages.
f. If you cannot apply online, you will need to complete Form 9465, Installment
Agreement Request.
g. For more information on applying for an IRS payment plans, go to
https://www.irs.gov/payments/online-payment-agreement-application
If you cannot pay your taxes on time, you must establish a payment plan with the IRS. If you do not follow these steps, the IRS can levy your salary, bank accounts, or property. You do not want to get into that situation.
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