Monday, April 18 marks the deadline to file and pay any 2021 federal income taxes you owe. If you haven’t filed yet, or did file your return but haven’t paid your balance, now is the time to take action.
“A lot of tax law has changed in the past year, and there’s a lot of confusing stuff. More time gives you more of a chance of getting it right,” says Michele Cagan, CPA, founder of Single Mom CPA and author of “Debt 101.”
But don’t panic if you’re still unprepared: the IRS has options to further extend your filing deadline, plus payment plans available if you don’t have enough cash to pay your balance in full before the deadline.
How to File a Tax Extension
If you need more time to file, request an extension from the IRS to delay your due date until Oct. 17, 2022. Anyone can apply for an automatic extension by filing Form 4868 through the IRS Free File software.
However, if you are able to file and pay your taxes owed today, do it.
You can complete your tax return and submit payment online via the IRS’ Free File service, which is available to filers whose income is $73,000 or below. If you’re ineligible for Free File, you can use an online third-party service such as TurboTax or H&R Block, or submit your return by mail, as long as it’s postmarked by April 18. Otherwise, an extension is a good option.
“A lot of people think that if you file an extension, somehow that puts you at risk for an audit or you get in trouble for filing an extension. That’s not true at all,” says Cagan.
But you should remember that this is a filing extension only. If you owe the IRS money, you’re still obligated to pay by April 18. Any taxes you owe after April 18 will be subject to interest, which accrues daily, as well as monthly penalties.
Learn more about penalties and interest on the IRS website.
How to file an extension online
You can file an extension online via IRS’ Free File software for free or you can use a third-party tax software, like Jackson Hewitt or H&R Block. The form will be submitted to the IRS electronically. If you work with a tax professional, may also be able to electronically file an extension on your behalf.
If you think you’ll owe money when you file, you should submit a payment when you file for an extension, too. The form offers different options for payment, including electronic transfer.
How to file an extension by mail
Experts recommend filing online if possible, but you may choose to print and manually complete Form 4868 line-by-line using the IRS’ step-by-step instructions. You’ll need to estimate your tax liability to determine if you owe anything when filling out the form. You can submit your payment via check or money order, using the instruction on the form.
When filing for an extension by mail, make sure you have proof that you submitted the form on or before the April 18 deadline to avoid any penalties.
What To Do If You Owe Taxes
When you file your extension, you’ll need to include an estimate of your taxes owed on the form, which can help you determine the payment amount you should submit when filing. Use last year’s tax return, along with your W-2 and forms for other income sources (such as 1099s) to estimate.
The IRS offers a tax calculator to help you figure out your total tax obligation using your pay statements most recent tax return. To determine what you still owe, subtract any amount you’ve already paid toward taxes.
If you submit your estimated payment through IRS Direct Pay and indicate that the payment is for an extension, the IRS will automatically count your payment as an extension, even if you haven’t filed Form 4868.
If you don’t have the money to pay what you owe in full right now, any amount that you are able to contribute can help reduce the penalties and interest you’ll be charged in the future.
“If you are in a tough spot and don’t know if you’ll owe because you haven’t had a chance to get your documents together, the best thing to do is to file an extension with both the IRS and your state and make an extension payment — that way you’ll avoid penalties,” says Ally-Jane Ayers, CFP, co-founder and financial planner at Brooklyn FI.
For further flexibility, take time to apply for a short-term payment plan or long-term installment agreement with the IRS to spread your balance out over time with a lower monthly payment.
If you decide to use a payment plan, complete the application today. You can apply for a plan online and receive an immediate notification of whether you’ve been approved.
What To Do If You Owe State Taxes
Filing a federal tax extension with the IRS only covers your federal tax return.
However many state tax agencies set their state filing deadlines on or around April 18, too. Check your state’s tax website to find your 2021 state tax due date. In some cases, you’ll need to file for an extension both federally and with your state.
The guidelines and deadlines can vary by state. For instance, if you are granted a federal tax extension as a North Carolina resdient, you’ll also be automatically granted a state tax extension for North Carolina taxes. You’ll need to show proof that the extension was approved, and it will be for the same amount of time that the IRS grants — six months (Oct. 17).
But some states, such as New York, require you to request a separate extension using by filing a form with the state. If you know you need an extension, it’s best to check your state’s requirements now to make sure you file in time. Remember to complete any required documents and keep proof that you submitted.
Whether your state tax extension is automatic or not, state extensions also do not apply for taxes owed. If you think you owe, you’ll need to submit payment of your estimated tax obligation by your state’s tax deadline.
What To Do If You Expect a Refund
Even if you don’t owe any money to the IRS, you should still make sure your return is filed by the deadline to receive your refund — and any stimulus money you may still be owed — as quickly as possible.
Still, prepare to be patient: The IRS continues to face processing delays (especially if you file by mail) due to its large backlog and implementation of last-minute tax changes. Double check your return for any mistakes or inaccuracies to best ensure it’s processed and your refund issued as quickly as possible.
After you file, you can check the status of your refund using the Where’s My Refund tool on the IRS website.
Act quickly to file and pay your taxes owed by the tax deadline, but remember to approach your situation with a clear head and know the facts, Ayers says: “Stay calm and lean on the IRS website for help.”
Take time today to develop your action plan. Go ahead and file your return and pay online if you’re able; otherwise, file for an extension until Oct. 17, pay what you can of your estimated balance, and apply for a payment plan if necessary.