Understanding Extensions
The due date for 2023 individual tax returns is Monday, April 15, 2024.
An extension gives you extra time to file your tax returns without having a late filing penalty, as long as you file before the extended due date.
To get an extension, you must request it on or before the regular due date of your return.
For individual taxpayers, your extension gives you until October 15 to file your returns.*
However, please note that an extension does not give you more time to pay any tax due. The due date for payments is still April 15.
If you pay after April 15, even if you have an extension, you will have to pay a late payment penalty, plus interest, on the unpaid balance until it is paid off.
How to Reduce or Eliminate Late Payment Penalties
To reduce or eliminate late payment penalties, you have a couple of options:
- Make a payment with your extension. This can be arranged with your tax preparer at the time you file your extension. Or you can make a payment online at the IRS website. Be sure to specify that you are making an Extension payment for 2023.
What if I don’t know how much tax I will owe? Your tax preparer can help you estimate what you might owe, or you can start with the tax you owed last year and adjust it depending on whether your income went up or down this year. It is better to pay something even if you don’t know exactly how much it will be. If you overpay, you will receive a refund. If you underpay, your penalty will be based only on the amount you are short, so it will be much less than it would be if you don’t pay anything.
- Request a payment plan. This can be done online at the IRS website. You will still pay penalties and interest on the unpaid portion, but your balance will go down each month so your penalties and interest will decrease. As long as you keep up your monthly payments, the IRS will not pursue collection actions against you. You can always make extra payments or pay off the balance any time to stop additional penalties from accruing.
- Increase your withholding or make quarterly estimated tax payments. This option won’t help this year, but it will help you avoid penalties next year. If you are paying enough during the year to cover your tax, you don’t have to worry about penalties if you get an extension.
How Much are the Penalties?
- The late filing penalty is 5% of your unpaid tax for each month (or part of the month) your return is late.
For example, if your tax is $1,000 your late filing penalty will be $50 if you file between April 16 and May 15, $100 if you file between May 16 and June 15, $150 if you file between June 16 and July 15, etc. The maximum is 25%.
- The late payment penalty is 0.5% (one half of 1 percent) of your unpaid tax for each month (or part of the month) your payment is late.
For example, if your tax is $1,000 your late payment penalty will be $5 if you pay between April 16 and May 15, $10 if you pay between May 16 and June 15, $15 if you pay between June 16 and July 15, etc.
- Interest is also charged on your unpaid tax. The annual interest rate is currently 8%.
So you can see, the late filing penalty is much higher than the late payment penalty (10 times higher, to be precise). Therefore, it is better to file your returns on time (or get an extension and file before the extension due date) and pay late, than it is to file your returns late.
* Other due dates:
- If you lived and worked outside of the U.S. last year, your due date to file and pay is June 17 this year. This extension is automatic. You can still request an extension until October 15.
- For regular corporations (Form 1120), the extended due date is October 15.
- For partnerships (Form 1065) and S corporations (Form 1120S), the extended due date is September 15.
- For trusts and estates (Form 1041), the extended due date is September 30.
- For nonprofit information returns (Form 990) the extended due date is November 15.
When the due date falls on a weekend or holiday, the due date is the next business day.
