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I had to file a tax extension this year: Here's what I learned about how to do it

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Key Points
  • Over the past two years, Tax Day has been extended due to Covid-19. This year there is no delay. But because of the Emancipation Day holiday in Washington, D.C., most returns are due April 18.
  • Filing a tax extension will give you until October 17, 2022, to send your tax return to the IRS.
  • "Filing an extension is an extension of time to file, it is not an extension of time to pay," says Michael Corrente, managing director in the Boston office of accounting firm CBIZ MHM.

For the first time in my life, I have to file for a tax extension from the IRS. I'm in the process of moving, I'm getting married in a few weeks, and tax prep got away from me.

I regularly report on tax-related news, so you'd think I'd know all about the process. But everything I've learned while reporting this story is news to me.

About 91 million people have filed their federal returns as of April 1, down from 93 million filers at the same time last year, according to the IRS. Typically, Americans file about 160 million tax returns a year, which means that about 70 million people still need to file before this year's deadline.

Keep in mind, in 2021, and in 2020, taxpayers had extra time to file due to the Covid-19 pandemic. It's possible that's why this year's April 18 deadline feels a little more daunting. (Typically, Tax Day falls on April 15. But because of the Emancipation Day holiday in Washington, D.C., for taxpayers in most states, federal returns are due April 18.)

If you're like me and need a little extra time to get your life together, filing a tax extension will give you until October 17, 2022 to send your federal tax return to the IRS. The process is straightforward: You just need to fill out and send the IRS a Form 4868.

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But if you owe the federal government, you aren't off the hook, says Michael Corrente, managing director in the Boston office of accounting firm CBIZ MHM: "Filing an extension is an extension of time to file, it is not an extension of time to pay."

So if you owe the IRS money, you still have to pay those taxes by April 18, even if you get an extension from the IRS until October.

"You still have to do most of the work and collect the paperwork," Corrente says. "You'll have to do your best to use all of the documentation you have to estimate your tax liability and pay the IRS on the due date." The Form 4968 instructions have guidelines on how to do that.

Here's what I learned about the process of filing an extension, that may help you, too.

'Anyone can file for an extension'

Getting a filing extension from the IRS is free. Regardless of income, individual tax filers can use Free File to electronically submit that Form 4868 and request an automatic tax-filing extension, according to the tax agency. (Check with your state's tax office to see if you also need to file a state extension form.)

If you don't file either your federal return or a Form 4868 by the April deadline, the failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late, according to the IRS. But that penalty won't exceed 25% of your unpaid taxes.

The IRS generally doesn't ask individual taxpayers for an excuse as to why they need to file an extension, according to Corrente. "Anyone can file for an extension," he says.

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One very legitimate reason as to why you might need to file an extension is because you don't have all of your paperwork yet, he says. "The most important thing is making sure you have accurate and complete information."

If you received a stimulus check in 2021, or you qualified for the new enhanced Child Tax Credit, "it may be worth filing an extension once you receive and understand all of that documentation," he says. "It's a confusing situation that can complicate your tax return, and this way you wont have to file an amended return."

If you're missing any other "vital information" like a Form 1099-INT, which details your interest income, or any if you sold any stocks or investments and don't have the proper paperwork, it may be worth filing an extension, Corrente says.

Late tax payments are subject to interest and penalties

If your estimates show you likely owe the federal government taxes, "that amount needs to be paid by April 18," says Corrente.

If that estimate is daunting, and you can't pay, there are options. "You can try to reach out to the IRS and schedule a payment plan, but the payment plan is going to come with interest, and potentially, penalties," Corrente says.

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The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month that a tax return is late, according to the IRS. That penalty won't exceed 25% of your unpaid taxes. For taxpayers on an approved payment plan, the penalty is reduced to 0.25% per month or partial month.

You'll also owe interest, and for taxpayers other than corporations, the underpayment rate is the federal short-term rate, plus 3 percentage points. That interest starts racking up from the due date of the return until the payment date, and is compounded daily.

Avoid an extension if you can, to prevent refund delays

"If you can avoid it, meaning that you have all of the right documentation and paperwork to file an accurate and complete return, then it's always better to file it on time," Corrente says. "Especially if you're expecting a refund, you have a better opportunity of getting that refund a lot quicker."

The IRS is experiencing a historic backlog of returns, so it's possible that if you file late, your return is more likely to be delayed, compare with someone who filed on, he says.

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