You could be forgiven for missing your tax extension deadline. After all, it's 2020. You could be, but unfortunately, you won't. The IRS wants your return and your tax payment. They waited three extra months, and now they want Uncle Sam's cut.
But, ya know what? It’s kinda OK. Missing the extension deadline is like missing Tax Day itself. Although there are penalties involved and some interest on your unpaid balance, you can still recover from this.
When Was I Supposed to File Again? Extensions in the Time of Coronavirus
This year, with the pandemic and all, Tax Day was delayed from April 15 to July 15. Everybody had an extra three months to get their taxes together. Some needed even more time than that. In a typical, non-2020 year, you would get six extra months to file when requesting an extension. This year, well, you only got three.
If you filed IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, you had until the middle of October to file and pay your 2019 taxes.
Yep, the deadline for filing your taxes if you had an extension was October 15. And you missed it. Now what?
Failure to File vs. Failure to Pay
There are penalties for both failure to file your taxes and a failure to pay your taxes. One is harsher than the other.
- Failure to pay taxes means you get to pay an extra 0.5% on the unpaid balance of your taxes.
- Failure to file has a penalty of 4.5% on the unpaid balance.
- The upper limit on both is when interest reaches 25% of the amount due.
- On top of that, you accrue interest on your tax balance.
If you filed for an extension and then didn’t file by October 15, you will get hit with a failure to file. If you filed for an extension, filed your return on October 15, and then didn’t pay anything, that half-percent penalty may be raised. If you were able to pay a little bit towards your taxes on July 15, you might have saved yourself some interest at least, but that will be rapidly eaten up by the failure to file penalty.
Did You Get a Premium Tax Credit?
The premium tax credit is to help pay for insurance. When you file for one, you need to file and pay as soon as possible, or you may lose it. You don’t have as much time as you do to file to get a tax refund.
What If You Are Due a Refund?
If you’re due a refund, that's great. It means there is no failure to file penalty because it doesn't apply in this case. The IRS is happy to keep your money if you don't want it back. Just don't file.
If, however, you do want your refund, you need to file your return. You won’t earn any added interest on your refund by letting the IRS keep it. And if you don’t file within three years, you won’t get that refund back at all.
What If You Owe Taxes?
If you filed for an extension in July then missed filing by October 15, not only will interest continue to accrue on your tax debt, you will get hit with a failure to file penalty. As mentioned above, that one is more expensive than a failure to pay.
The best thing to do is to file as soon as possible, although that won't eliminate the penalty. If you can pay something, anything, toward your tax debt, so much the better. At the least, you can reduce the tax burden, which then accrues less interest and penalties.
Until you pay off the balance, interest, and penalties will continue to accrue. If you know you cannot pay your entire tax debt at once, the IRS offers payment agreements, both short and long-term. Contact the IRS as soon as possible to get one arranged.
You can take as little as 120 days to pay off the balance or as much as 72 months (5 years). Just remember that as long as there is a balance pending, it will continue to accrue interest and penalties. The failure to file penalty maxes out at 25% of your balance, but the lower you can make your balance, the better.
There are eligibility requirements, and you must be completely current on past tax return filings and payment.
If you know you cannot possibly pay the entire amount, you may be able to arrange an Offer in Compromise, which allows you to pay a lower amount.
Believe it or not, the IRS does realize doing your taxes in a war zone or natural disaster is pretty impossible.
If you are a member of the military who has served or is currently serving in a combat zone, you get an additional extension of at least 180 days to file and pay taxes. Support personnel in combat zones or a contingency operation in support of the military may also be eligible for an added 180 days or more.
2020 has seen its share of disasters. Those in disaster situations from the California wildfires to the hurricanes in Louisiana qualify for more time to file and pay.
If you are out of the country at tax time, you may qualify got two to four additional months to file.
For Tax Year 2020
So you don’t find yourself in this spot in April 2021, start planning now. The federal government is unlikely to delay tax day again, so you need to get your next round of tax files ready within the next six months. That sounds like a lot, but, you know, we have HallowThanksMas to get through, so the rest of 2020 will fly by (we hope).
If you haven’t been setting aside documents and money, start now. Find all the documents you may need to file next Spring and put them in a folder or scan them into your computer. Then check your withholding at work to make sure it’s enough. If you work for yourself, keep up with your estimated tax payments.
So, get a move-on. Contact the IRS or contact us, Top Tax Defenders, as soon as possible so you can get a handle on your 2019 taxes and the interest accrual. Then make an appointment for Spring 2021, so you don’t have to go through this again.