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. |