Tax extensions explained: How and why to file for more time

What is a tax extension?

A tax extension is a way for you to get more time to file your tax return. But here’s what people misunderstand, it’s more time to file the forms with the IRS, it is not more time to pay. If you owe the IRS, you must pay by Tax Day, or risk penalties and interest.

When should you consider filing a tax extension?

Life gets in the way. Things happen, and we let things slip through the cracks.But as long as you fill out and submit a Form 4868, Application for Automatic Extension of Time to File by Tax Day, you’ll get an automatic six-month extension to file your tax return.

• It’s free, and the IRS does not charge you a penalty or a fee to file Form 4868. The Tax Pros at Jackson Hewitt can help you fill it out, too!
• Keep in mind, you have a legal right to file an extension, granting you more time to file your tax return. And while the IRS doesn’t require you to tell them why, it is best practice to do so for a good reason.
• Tax extensions aren’t meant because “you’re not in the mood,” but rather, you should consider filing an extension if you’re missing documentation related to your return.
• Or you’re getting closer to Tax Day and realize you’re missing a W-2, and your employer can’t get it to you in time. You should not estimate and guess what was reported on your W-2. Otherwise, you could risk major issues with the IRS and state for filing an incorrect tax return.

There are other reasons to consider filing a tax extension. Some event in your life disrupts your ability to file your tax return, like a death or illness in your family. Maybe you’ve been affected by a natural disaster. Filing an extension also gives you more time to correct mistakes. For example, if you receive a Form 1099 from freelancing or a side gig and it reports an incorrect amount paid to you.

Here’s how to file tax extension

You and your Tax Pro are going to complete Form 4868. It can feel overwhelming, because you need to have legitimate information. There is no guessing here, and it’s not as simple as checking a box saying, “I need six more months!” You’ve got a little bit of work to do. But it’s nothing that Jackson Hewitt’s Tax Pros can’t help you with.

Part 1; steps to follow:

• Line 1 is where you put your name as it is shown on your Social Security card and your mailing address.
• If there has been a change in your name since the last time you filed taxes, due to marriage, divorce, or another reason, the Social Security Administration must be notified of the change before you submit IRS Form 4868. If you don’t get the name properly registered with them beforehand, your tax extension application process will be delayed, or may be denied.
• If there’s been a change in your address since the last time you filed taxes, you will be required to fill out Tax Form 8822 (Change of Address) to inform the IRS.
• Lines 2 and 3 are where you put your Social Security number(s) for you and your spouse, if you have one.
• If you don’t have a Social Security number because you’re not eligible for one, enter your Individual Taxpayer Identification Number (or ITIN) in its place.

Part 2; here’s where you put in your estimated information about your income tax liability:

• Line 4 is where you’ll put a dollar amount for your estimate of total tax liability. If you have zero liability, meaning your deductions are greater than your taxable income so you have no taxes, enter zero. 
• Line 5 is where you’ll put the total annual tax payments you made. This includes any quarterly estimated tax payments you made last year, as well as all federal income tax that was withheld from your paychecks throughout the year--or even both amounts added together if you have both.
• Line 6 is where you’ll put your balance due for the year. It’s the total unpaid tax balance that’s owed to the IRS. You get this number by subtracting the number you had for Line 5 from Line 4. If the amount shown on Line 5 is greater than Line 4, simply enter “zero” in this field.
• Line 7 is where you’ll put the number you’re paying when you file Form 4868. If you DON’T owe the IRS because you’re expecting to get a refund, simply enter “zero” in this field.
• If you live outside the United States, but you’re still a citizen or resident, you’ll check the box on Line 8. And if you file Form 1040-NR (for non-residents) and didn’t receive wages as an employee subject to U.S. income tax withholding, you’ll check the box on Line 9.

What happens if I don’t file a federal tax extension?

If you’re watching this and it is already past April 15, and you forgot to file an extension AND your tax return in general, it’s okay. Breathe and don’t panic. File your tax return as soon as you’re able. You can’t file an extension after Tax Day, but you can file your tax return. If you owe, you’ll most likely get hit with a failure-to-file penalty, but I urge you to not put it off any longer than right now.

You might face the failure-to-file penalty, which is generally 5% of the unpaid tax amount each month, and it caps out at 25%. Late filers are assessed the failure-to-file penalty for each month they did not file. Generally, a federal return that is due a refund does not get this penalty. However, some states do penalize refund returns that are filed late.

You might also get hit with the failure-to-pay penalty, which is a penalty if at least 90% of your expected taxes due that are not paid by Tax Day. This penalty is much less costly; it starts at 0.5% or 1/2 a percent of unpaid taxes each month, and it also caps out at 25%. So, it’s less costly monthly, but it does add up fast over time. And interest is compounded daily, meaning that the numbers grow fast. So, the longer you wait to file and pay, the more you’ll pay in penalties.

Who doesn’t need to file an extension, but gets one anyway?

There ARE some people who will get an automatic extension on their federal tax return, even if they don’t submit a Form 4868.

These include the following:

• U.S. citizens who lived and worked outside of the country on the deadline have until June 15 to file their tax return. But they must pay their taxes by April 15.
• People who were in a federally declared disaster area last year get more time to file and pay their taxes.
• Members of the military who are in a combat zone for any time during the filing season get an automatic 180-day extension to file and pay their taxes.

What do I do after I file a tax extension?

After you have filed an IRS tax extension, don’t keep waiting to file. File as soon as you’re able. Just because you’re given six months, that doesn’t mean you should wait until October to finish your tax return. Find a Jackson Hewitt office near you and work with a Tax Pro today to learn more about how you can file an extension.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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