What Do You Mean, I Still Have to Pay on April 15? |
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If you're planning to file for a tax extension, then you know that you'll get an extra six months to file a completed tax return. But did you know that you still have to pay the taxes you owe by the original deadline? This is pretty confusing to a lot of people. Don't you file for a tax extension because you don't have the money to pay your tax bill in March or April? Sadly, no. With a tax extension, you'll get extra time to take advantage of new tax laws and make sure you've filed the most advantageous return possible--but you still have to pony up the tax liability you expect to owe, right on time. If you end up owing fewer taxes than you thought, you'll get a refund (and if you end up owing more, you'll have to pay that too). But on March 15 (for businesses) and/or April 15 (for individuals), you have to pay whatever you think you owe. What Happens if I Don't Pay My Taxes on Time? Two things. First, if you don't pay your taxes by the standard deadline, you'll face a late-payment penalty that accrues every month starting in March/April, whether you've filed for an extension or not. Second, you'll start accumulating interest on your unpaid balance--but if you file for a tax extension, this won't happen until the extended deadline of September or October 15. The late payment penalty typically equals 0.5% of your tax liability, calculated each month. For example, if you owe $4,000 in taxes, the IRS may charge you $20 per month as a late payment penalty: $4,000 x 0.5% = $20 If you haven't paid your balance by the time your tax return is due (let's say October 15 for a personal income tax extension), you'll begin to accrue interest on your outstanding tax liability. This is usually 5% of your balance (also per month), with a minimum payment of $100 if you're more than 60 days behind. So if you filed a tax extension but haven't paid your balance by November 15, you'll have $4,000 due plus $120 in late payment penalties ($20 per month for six months). Each month, you'll be charged an additional 5% interest penalty, which is $206 for November. $4120 x 5% = $206 All in all, it's critically important that you pay your taxes by the standard deadline, whether you file for a tax extension or not. But if you're looking for a bigger refund, file a tax extension online this year, and maybe you'll get a bit back. |