Did You Miss the Tax Deadline, April 18th, 2023?

The initial tax deadline, April 18th, 2023 has come and gone. BUT do not panic, filing an extension by April 18th and paying the estimated tax due minimizes penalties.

What is an Extension?

Taxpayers may file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, (wow, that is a mouthful!) with the IRS, to qualify for a six-month extension to file the Federal Income Tax Return. Form 4868 does NOT grant an extension of time to pay. In order to qualify for an extension, a taxpayer must estimate the year’s tax liability based on the available information. If a taxpayer expects a balance due, then payment should be made with Form 4868 to avoid penalties or interest. The extension expires six months after the initial tax filing deadline. For example April 18th, 2023 was the initial filing deadline, therefore the extension will expire on October 16th, 2023.

Do I Have to Make Payment with my Extension, and if so, how do I Know How Much?

A payment is NOT required with the filing of Form 4868, BUT depending on your individual tax situation, penalties could be assessed for underpayment of estimated tax payment made with Form 4868. A payment should be made if a balance due is anticipated. Taxpayers must pay at least 90% of the prior year’s tax, or 100% of current year’s tax, to eliminate an underpayment penalty. Be sure to credit the payment made with the extension on the Federal Income Tax Return under the Payments section, when filing the return.

There are a couple ways of calculating the payment to be made with Form 4868:

1. If you did not have major change to your income, filing status, or dependents:
   1. Use your 2021 Total Tax minus any withholding, credits, and/or estimated tax payments made throughout the year
   2. If you have a remaining balance, this is the payment to be made with your extension.
2. If you did not have major changes in your income, filing status, or dependents you may want to do a more complex calculation to determine how much you should pay with your Extension.
   1. Total all your taxable income for 2022 based on the information you have available.
   2. Find the tax bracket you fall within and multiply your taxable income by that tax rate.
   3. Subtract any withholding, credits, and/or estimated tax payments made throughout the year from the product of Step b.
   4. The difference between Step C and B is the amount you will pay with your Extension.

How do I submit my Form 4868 to the IRS?

There are three ways to file, pay and submit your Form 4868 with the IRS.

1. Pay Electronically – use the available hyperlink to the Direct Pay system on the IRS website. You can pay with direct bank transfer or with a debit/credit card. When you make payment online with the Direct Pay system, you do not have to file the physical Form 4868; the IRS automatically files Form 4868 for you upon payment.
   1.   https://www.irs.gov/payments/direct-pay
2. Pay by Check or Money Order – when paying with check or money order you will enclose a check and Form 4868 together, and mail them to the appropriate address based on your residential state. You can find the address to where you need to send your payment and form on the instructions for Form 4868 subsection: Where to File a Paper Form 4868.
3. E-file Using a Tax Software or Through a Tax Professional – Form 4868 and payment can be made electronically using tax software if you would like to contact a Tax Professional to submit your form and payment.

What happens if I do not File an Extension or Make a Payment?

If an extension is not filed, and you owe additional taxes, penalties and interest are assessed on top of your tax liability.

1. Late Filing Penalty – This penalty is charged if your return is filed after the due date, April 18, 2023 without extension, or October 16, 2023 with extension. The penalty amount is 5% of the amount due for each month, or part of the month the return is not filed, up to 25% of the tax liability.
2. Late Payment Penalty – This penalty is charged for any tax not paid by the tax deadline, April 18, 2023. The penalty is 0.50% of the tax unpaid, up to 25%, and is assessed each month, or part of the month the amount is unpaid.

Interest is calculated until the balance due is paid in full, the Internal Revenue Service interest rate changes in accordance with the Federal Short-Term rate plus 3 percent.

How can you limit the amount of penalties and interest on unpaid tax liabilities?

The only way you can limit the amount of penalties and interest on your unpaid tax liability is to file and pay your tax liability in full as close to on time as possible. I know that sounds like a DUH statement, but the IRS is unforgiving when balances are unpaid.