Understanding What Happens When You File an Extension at Tax Time

posted on April 15, 2025

It’s important to understand that an extension to file is not an extension to pay. Here's a breakdown:

1. Filing Extension is Free and Avoids Failure-to-File Penalty:

• You can file a tax extension for free, pushing your filing deadline from April 15th to October 15th (for the 2024 tax year, filed in 2025).
• Filing an extension helps you avoid the "failure-to-file" penalty, which can be significant.

2. But You Still Need to Pay Taxes Owed by April 15th:

• Your tax payment is still due on the original tax deadline, which is typically April 15th.
• If you owe taxes and don't pay by April 15th, you may be subject to penalties and interest, even if you have filed for an extension.
• The IRS charges interest on any unpaid tax balance, which compounds daily, from the original due date until the balance is paid.
• There's also a late-payment penalty if you don't pay the full amount due by April 15th. This penalty is 0.5% of the unpaid taxes for each month or part of a month the tax is still unpaid, up to 25%.

3. Important Considerations:

• Estimate and Pay: If you think you will owe taxes, it's critical to estimate your tax liability and pay at least that amount by the original tax deadline, even if you're filing for an extension.
• Pay what you can: If you can't pay the full amount you owe by the deadline, pay as much as you can to reduce the penalties and interest you might incur.
• If you are unable to pay, the IRS offers options such as setting up a payment plan.

In summary: Filing a tax extension can help you avoid the failure-to-file penalty, but you still must pay any taxes you owe by the original deadline to avoid penalties and interest.