Tuesday is Tax Day, and as the clock winds down, many Americans are scrambling to complete their federal income tax returns before the midnight deadline.
For those who still haven't filed, the good news is that there are still options available. First, the Internal Revenue Service offers an automatic six-month extension to anyone who requests it by Tuesday's deadline.
How to file a tax extension
Requesting an extension with the IRS will give you until Oct. 16 to gather your documents and complete your return accurately. You can request an extension by filing Form 4868 through a tax professional, tax software or by using IRS.gov/freefile. If you prefer to mail in the paper version of Form 4868, make sure it's postmarked no later than April 18 and the IRS will accept it.
While an extension allows extra time to prepare and file paperwork, it's important to remember that it's not an extension on time to pay. Payments on taxes owed are still due by midnight tonight. Not everyone will owe, but if you believe you do, you'll have to estimate your tax liability using IRS Form 1040-ES. Once you calculate how much you owe, it's crucial to pay that amount before the midnight deadline to avoid any late penalties or interest charges.
You'll also be granted an automatic filing extension by using IRS Direct Pay, the Electronic Federal Tax Payment System, or by paying with a credit or debit card. As long as you make a payment and indicate that it's for an extension, then there's no reason to file Form 4868 — the IRS will automatically grant you more time.
What if I can't pay the full amount?
If you can't pay the full amount, there's no need to panic. You should still pay as much as you can by tonight's deadline to reduce the overall amount subject to penalties and interest charges, which can be 10 times as costly.
The current interest rate on unpaid taxes is 7% and it compounds daily, meaning it can add up fast. The late-filing penalty is generally 5% of the amount owed per month, and the late-payment penalty is typically 0.5% per month, both of which max out at 25%.
The IRS will also work with you if you can't cover the full amount owed. Most people can apply for a payment plan, which will still charge you interest, but it's much less than if you don't pay at all.
The IRS offers a short-term payment plan that allows you to pay off the balance due in 180 days or less, plus accrued interest and penalties. Or you can apply for a long-term payment plan — also called an installment agreement — which gives you more than 180 days to settle your tax bill, but comes with higher fees and penalties.
Are you among 1.5 million Americans owed a 2019 tax refund?
The IRS estimates that of the 1.5 million people who are owed a 2019 tax refund, half would get over $893.
If I know I'm getting a refund, do I still need to pay?
The simple answer is no.
The IRS calculates the late-filing penalty based on any taxes you owe. If you believe you'll be getting a refund and don't owe anything, then any interest charged on $0 is still zero.
IRS opting for 'soft notices' instead of auditing working class
The IRS plans to use new funding for enforcement, among other things, but vowed not to increase audits on Americans making under $400,000 a year.
You may automatically qualify for an extension
In February, the IRS announced that taxpayers affected by natural disasters may automatically have their deadline extended.
The agency is offering relief to anyone in places designated a disaster area by the Federal Emergency Management Agency. This includes people in California and New York impacted by severe snowstorms and flooding, as well as some residents in Southern states hit by tornadoes and extreme thunderstorms.
For the full list of recent tax relief provisions for those affected by disaster situations, click here.
