Tax extension: The October deadline for filing your return is almost here
If you are among the roughly 19 million people who asked the IRS for another six months to file their taxes in 2022, time is almost up.
Almost 1 in 8 taxpayers asked for an extension to file their taxes this year, according to data from the IRS, which expects a total of about 160 million tax returns to be filed in 2022. While most Americans file their returns before the traditional April 15 deadline, people who needed more time were able to automatically receive another six months from the tax agency in order to get their files in order.
This year, the tax extension deadline for filing your 2021 return is October 17, rather than the typical date of October 15, because the 15th falls on a Saturday. Yet while that gives taxpayers a little more breathing room, experts have recommended filing as soon as possible in order to avoid last-minute pitfalls. They also recommend sending your return electronically, since the IRS has struggled mightily with processing paper returns during the pandemic.
"Using the electronic filing options can make people's lives easier than mailing in paper tax returns," said Eric Bronnenkant, head of tax at Betterment, told CBS MoneyWatch.
Typically, about 1 in 10 taxpayers asks for an extension, but this year may have seen a jump in requests for extra time because of the ongoing pandemic and the complexity of a tax year that included the enhanced Child Tax Credit and other tax changes.
Tax extension due date
If you filled out a Form 4868 before this year's April tax deadline, you received an automatic six-month extension to file your taxes. As mentioned above, the extended deadline this year is October 17.
However, if you underpaid your taxes and owe money to the IRS, those payments were actually due in April. (Typically, the tax filing deadline is April 15, but in 2022 taxpayers had until April 18 to file and settle up with the IRS because the 15th fell on Emancipation Day, which is observed as a holiday in Washington, D.C.)
In other words, receiving an extension to file your taxes doesn't give you an extension to pay the IRS.
What if I owe the IRS?
If you didn't know you had to pay the IRS by April 18, you will likely face a "failure to pay" penalty. The same will occur if you paid the IRS in April but didn't estimate correctly and still owe more.
The IRS says the penalty for these situations is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty is capped at 25% of your unpaid taxes.
Take a taxpayer who failed to pay $1,000 in taxes that they owed by the April 18 deadline. In this case, the taxpayer will face $30 in penalties for the non-payment — $5, or 0.5% of the $1,000, per month during the six months between April 18 and the October 17 extended filing deadline.
But the IRS also charges interest on penalties — and the tax agency just raised that rate to 6% on October 1 from 5% previously.
Can I still contribute to my retirement fund?
That depends whether you have a SEP IRA account, which stands for a "simplified employee pension" (or SEP) individual retirement account.
These are typically used by self-employed individuals, but are also common among small business owners. Under IRS rules, people with SEP IRA accounts can contribute to their accounts until the due date for filing their federal income tax return for the year, which means people who asked for an extension have until October 17 to sock away some money.
That can help self-employed workers or small business employees both save money and lower their taxable income for the 2021 tax year. However, the deadlines for contributing to IRA and 401(k) accounts have passed for people filing their 2021 tax returns via an extension.
What if I don't file by October 17?
People who fail to file their return by the extended tax deadline will face harsher penalties. The IRS charges 5% of the unpaid taxes for each month that a tax return is late — or 10 times more than the underpayment penalty. It caps the penalty at 25% of your unpaid taxes. The tax agency also charges interest on the penalty.
Do disaster victims get more time to file?
Yes, the IRS is giving more time to file for people who are victims of recent natural disasters:
- Hurricane Ian victims who live in Florida and have a valid extension to file their tax returns by October 17 now have until February 15 to file their tax returns.
- Victims of storms and flooding that started on September 15 in parts of Alaska and who had also asked for an October extension now have until February 15 to file their returns.
- Likewise, Hurricane Fiona victims in Puerto Rico who had a tax filing extension now have until February 15 to file their 2021 returns.
