An extension of time to file a federal tax is required if you do not meet the April 15 deadline. However, requesting an extension of time to file your federal tax return doesn’t mean you get an extension to pay any taxes owed. You are required to pay any taxes owed by the original due date of your tax return. This is necessary to avoid penalties and interest charges.
How much do you need to pay to avoid penalties and interest?
The amount of money you need to pay to avoid penalties and interest depends. Factors include the total amount of tax you owe and the date you make the payment. If you owe taxes when you file your tax return, you will be charged a penalty and interest on the unpaid balance. The penalty is 0.5% of the unpaid taxes for each month. This is for each part of a month that the tax is not paid, up to a maximum of 25% of the unpaid taxes. Interest is also charged on the unpaid balance. It is calculated based on the federal short-term rate plus 3%.
It important to note that penalties and interest are 5% if a tax return is not filed. This means that an invalid extension can lead to much higher penalties. This is a reason why a tax return should be filed as soon as the information is available, after the April 15 deadline.
Penalties and Extension of Time to File Federal Tax Return
Regardless of how much you owe, a tax extension is not a payment extension. In order to avoid a penalty, you’ll need to have paid at least 90% of the tax for the current year or 100% of the tax shown for the prior year, whichever is less. For married couples filing jointly with adjusted gross income of $150,000 or higher, the withholding must be at least 110% of the total tax owed for the prior year ($75,000 if filing separately).
Generally, you can avoid the penalty if you owe less than $1,000. Special rules apply for certain individuals like farmers, fishermen and certain household employers.
What if you can’t pay the full amount owed?
If you can’t pay the full amount of taxes owed, you should still file your tax return on time to avoid additional penalties. You can then contact the IRS to set up a payment plan. This includes making payments and other arrangements to pay the remaining balance over time. The IRS offers several payment options. Thye best way to pay taxes is to create an online account with the IRS. There website is directpay.irs.gov. Alternatively, you can call at 800-829-1010.
What does it cost to file a tax extension?
It’s free to file a tax extension in any way that’s best for you: electronically or mailed. Filing an extension by April 18, 2023 is important. Not filing can cost you more in penalties and interest.