Q&A With Bill: Can I Pay My Taxes in October if I Filed an Extension?

William D. Truax, EA

William D. Truax, EA

All too often, the April 15th  federal tax return deadline arrives sooner than expected – causing frustration and anxiety as you scramble to get everything together at the last minute. Yes, a six-month extension is available from the IRS which defers your tax return filing deadline until October 15th  However, the tax was due April 15th (even if you weren't sure how much it should have been), and taxpayers are still responsible for paying late penalties on the unpaid tax that was due earlier – as well as any unpaid taxes from prior years. The bottom line is, extension or not, failure to file and pay your taxes on time can be a costly decision!  

Generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus a percentage. As of April 1st, the interest rate went from 4% to 5%, and interest compounds daily!

The three most common penalties include:

  • Failure to file – when you don't file your tax return by the return due date or extended due date if an extension to file is requested and approved.

  • Failure to pay – when you don't pay the taxes reported on your return in full by the due date, April 15th  An extension to file doesn't extend the time to pay.

  • Failure to pay proper estimated tax - when you don’t pay enough taxes due for the year with your quarterly estimated tax payments when required.

Failure to File

If you owe tax and don't file on time, there's a penalty for not filing on time. The failure to file penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there's also a minimum penalty for late filing; it's the lesser of $205 or 100% of the tax owed.

You must file your return and pay your tax by the due date to avoid interest and penalty charges.  

Failure to Pay

If you file a return but don't pay all tax owed on time, you'll generally have to pay a late payment penalty. The failure to pay penalty is 1/2% for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.

The 1/2% rate increases to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property. If you file your return by its due date and request an installment agreement, the 1/2% rate decreases to 1/4% for any month in which an installment agreement is in effect. Be aware that the IRS applies payments to the tax first, then any penalty, then to interest. Any penalty amount that appears on your bill is generally the total amount of the penalty up to the date of the notice, not the penalty amount charged each month.

If you're required to file a California return, their failure to pay penalty is 5% immediately as of April 16th, plus 1/2% per month until the tax is paid or the penalty hits 25%, whichever comes first.

Electronic payment options available on the IRS Payments page are the most convenient ways to pay your federal taxes. However, if you decide to pay by mail, be sure to return the tear-off stub on your bill and use the return envelope provided. In order to make sure your payment credits properly to your account, ensure you:

  • Make your check or money order payable to the United States Treasury

  • Enter the primary social security number or employer identification number

  • Enter the tax year and form number

  • Ensure your name, address, and telephone number are on the payment

  • Don't send cash

There are some exceptions to the general deadlines for filing a return and paying tax, such as:

  • If you're a member of the Armed Forces and are serving in a combat zone or contingency operation. Refer to Publication 3Armed Forces' Tax Guide, for additional information and qualifications.

  • If you're a citizen or resident alien working abroad. Refer to Publication 54Tax Guide for U.S. Citizens and Resident Aliens Abroad, for details.

  • If you were a victim in certain disaster situations. In those situations, the IRS has the authority to extend filing and payment deadlines. Search keyword "disaster" on IRS.gov for more information.

Failure to Pay Estimated Taxes

The United States income tax system is a pay-as-you-go tax system, which means that you are required to pay income tax as you earn or receive your income during the year. You can do this either through withholding from your employer or by making estimated tax payments if you’re self-employed or own a small business.  If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax.

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers and fishermen, certain household employers and certain higher income taxpayers. For more information, refer to Publication 505Tax Withholding and Estimated Tax.

Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if you receive income unevenly during the year, you may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method. Use Form 2210 (PDF)Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you owe a penalty for underpaying your estimated tax.

The law allows the IRS to waive the penalty if:

  1. You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or

  2. You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.

It's important you review all IRS notices and bills in detail. If you believe there's an error, write to the IRS office that sent it to you within the time frame given or call the number listed on your notice or bill for assistance. You should provide photocopies of any records that may help the IRS correct the error. If they find a mistake was made, they'll make the necessary adjustment to your account and send you a corrected notice.

William D. Truax, E.A. and his friendly team of licensed tax preparers have been helping individuals manage their tax payments and penalties for over 30 years. He is licensed to represent taxpayers before the IRS and is also a member of the Bar of the United States Tax Court.

If you need assistance or have questions about a noticed you’ve received or penalties you may owe, please contact us today for a FREE consultation. We’re here to help!