Tax Day is here, and midnight is the deadline. If you're running late, you have options – but most require filing something today. If you owe and can't pay, don't ignore it. Here's what to do.
Shortly after midnight, I got this panicky email from a Money Talks News reader…
Oh no! My taxes are due in less than 24 hours, and I’m not nearly done. I need to get an extension, but I have no idea how to do it. Even if I did, I’m confused by something: Do I still have to pay my taxes? If that’s true, how am I supposed to know how much to pay? That’s why I need the extension in the first place! Help! Please don’t use my name, because I’m embarrassed.
This panic-stricken reader is not alone. The IRS says 10 million of the 140 million Americans who file tax returns each year ask for extensions – and this year, Republican presidential hopeful Mitt Romney is one of them, according to The Washington Post. In fact, the IRS website has an entire section called Filing Late and/or Paying Late. But here’s what our worried reader really needs to know…
1. It’s not too late to ask for an extension
While midnight tonight is the deadline to file your taxes, it’s also the deadline to get an extension to file your taxes. You need to fill out Form 4868, which buys you an extra six months. And don’t worry about the IRS not granting you the extension – if you fill out the form correctly and send it in by the deadline, you automatically earn those six months.
So either get the Form 4868 postmarked by 11:59 p.m. tonight or file it online, either through the IRS e-file or through what the IRS calls an “outside service provider” – a fancy term for your tax software or tax preparer.
2. Make an educated guess
Your extension is only to file your taxes – not an extension to pay them. But what about dawdlers like our scared reader, who aren’t sure what they owe?
“They can send a payment to the IRS based on what they believe will be their tax debt, and once they have the extra six months, they can square everything away,” IRS spokeswoman Annabel Marquez told the Associated Press yesterday.
As long as you guess within 90 percent of what you owe by midnight, you won’t get hit with penalties and late fees – but you will owe interest on the unpaid portion.
3. Pay them now or pay them later
But what happens if you don’t file anything by tonight? Well, you’ll pay a lot more later.
The IRS failure-to-file penalty is 5 percent per month of taxes due. That means every month you don’t file, you owe another 5 percent, until you max out at 25 percent. And the minimum penalty is $135.
Meanwhile, the failure-to-pay penalty is a tenth of that. It’s one-half of 1 percent a month. And if you pay with an IRS installment plan, that cuts your penalty down to a quarter of a percentage point monthly. If you owe less than $10,000 and don’t have any other problems with the IRS, this is as automatic as the tax-filing extension.
You’ll have to pay $105 to set up the installment plan, but that gets cut in half ($52) if you let the IRS take the money out of your bank account electronically. Also remember: You’ll also owe interest on the unpaid portion, which is currently 3 percent a year.
4. You might be a special case
There are exceptions to every rule, even those written by the IRS. If you qualify for a program called Fresh Start, you get a penalty-free extension on actually paying your taxes. But you must fall into one of these two categories…
- “Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 tax deadline.”
- “Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.”
But as I mentioned above, even then, you still owe interest. (If you’ve survived a natural disaster in the past year or you were on active military duty, you might also qualify for the same break.)
I hope this helps our worried reader, and if you’re in the same predicament, I hope it helps you too. But the key thing to remember: If you owe money, file something today. If you’re not done, file an extension and send a check for what you think you’ll owe. If you don’t have the money, at least file an extension to avoid the failure-to-file penalty.
There’s one class of taxpayer that doesn’t have to worry about today’s deadline: those getting a refund. If Uncle Sam owes you, you won’t be penalized for filing late.