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Filing Extensions And Late Payment Penalties

I applied for an extension to pay my taxes. Why I am I being charged a penalty for late payment?

Many people get confused about the distinction between an extension for filing your tax return and being able to put off paying your taxes. The IRS distinguishes between the two and has two different penalty systems in place for each situation. Most people who apply for an extension do so for filing their return, not paying their taxes. It is important you know the difference so you are not hit with unexpected penalty fees.

What Filing for an Extension Generally Means

When you file for an extension to file your taxes by the October 15 deadline, you are only applying for an extension to file your tax return. The IRS still expects you to still pay your taxes by the April 15 due date. You may be wondering how you are supposed to be able to do that if you are not filing a return at the same time. The answer is that you should estimate your tax and pay that amount to the IRS. As long as you pay 90 percent of the final tax due by the April 15 deadline, you will not be charged any penalty fees.

Does Not Cover Your Tax Payment

If you do not pay your taxes by April 15, then you will be charged late payment fees, even if you have requested an extension to file. The late payment penalties are .5 percent per month, with a maximum of 25 percent of your total tax liability. If you have extenuating circumstances and know ahead of time you will be unable to pay, you can apply for an extension to pay with the IRS. If approved, then you will have up to 120 days to pay in full. You may still be charged penalty fees and interest, but it is typically less than if you just didn’t pay. If you had reasonable cause for not paying, such as a death in the family or an extended illness, then you can apply for Penalty Abatement to get some or all of the penalty charges removed.

Why File for an Extension to File?

Most people who file an extension to file do so because they do not have all the paperwork necessary to complete their return rather than a desire to put off paying. Many are investors or businesses that do not yet have the Schedule K-1 from their clients or need extra time to gather all their 1099s. Other people need extra time because something happened that made them lose some of their paperwork or are going to be out of the country during the normal tax time. By filing for an extension, they avoid the hefty late filing penalty fee of 5 percent per month up to 25 percent.

By filing for an extension, you simply request some more time to complete your tax return without having to face the penalty fees. This does not grant you extra time to pay your taxes. Therefore, it is important that you always pay your tax on time, even if you have to do an estimated payment, or file for an extension to pay as well as file. This will reduce your added burden with penalty fees and interest, although you may still have some.

If you do owe back taxes or find you cannot pay your tax, contact Fidelity Tax Relief. We will discuss your situation and help you with the best tax debt resolution for your case so that you can get out of debt with the IRS.

Time is running out!​

When you owe money on your federal taxes, one of the common collection actions taken is IRS tax garnishment, typically on your wages or salary. Wage garnishment can leave a person with very little money on which to live. 

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