Here's why the IRS is cool with procrastinators

And why everyone may want an extension

Derek Silva

By

Derek Silva

Derek Silva

Personal Finance Expert

Derek is a personal finance editor at Policygenius in New York City, and an expert in taxes. He has been writing about estate planning, investing, and other personal finance topics since 2017. He especially loves using data to tell a story. His work has been covered by Yahoo Finance, MSN, Business Insider, and CNBC.

Published October 12, 2021|4 min read

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Tax Day was May 17, but if you requested an extension then you have until Oct. 15 to file your federal income tax return. The tax extension, as we know it today, started with the 1990 tax year. It’s automatic, so you don’t need a reason to ask for one. And anyone can get an extension. Even presidents regularly get tax extensions.

What is a tax extension?

A tax filing extension gives you an extra five months to file your 2021 federal income tax return. It’s an automatic extension, so the IRS gives it as long as you request it by the end of Tax Day and fill out the form correctly (Form 4868). The income tax extension also gives you more time to file a gift tax return.

Importantly, a tax extension is only more time to file your tax return. If you owe a tax bill, you still need to pay it by Tax Day. Failing to pay your bill by Tax Day will result in a late fee and interest of 0.5% monthly. If you can’t afford to pay your tax bill, consider a payment plan with the IRS.

How many people use tax extensions?

Typically about 10% to 15% of tax returns are filed with an extension. And while most people get a tax refund, about 2 million people per year make a payment when filing their request (since the extension is only more time to submit a return, not to pay your tax bill). The average bill for those people is just $69.

Is getting an extension a good idea?

If someone doesn’t feel ready to file their taxes by Tax Day, then yes, getting a filing extension can be a good idea. After all, why not? No one needs a reason, so it doesn’t matter if you’re out of the country or just don’t feel like looking through the pile of receipts on your desk.

There are also legitimate reasons someone may need a tax extension. For example, someone may not be able to file by Tax Day because they’re missing a form or because the form they received was incorrect and needed to be redone by the form’s sender. Getting all tax documents organized can also be difficult when finances change greatly from one year to the next, like after a marriage or divorce. And especially during the coronavirus pandemic, there are cases where people need more time because they’re sick or they’re caring for someone who is sick.

For more on whether you should get an extension, read our full guide to tax extensions.

4 tax extension myths

Tax extensions can make life much easier, but they’re often misunderstood. To set the record straight, here are four myths about extensions:

  • A tax extension gives you more time to pay your tax bill. Wrong, and this is important: You always need to pay your bill by Tax Day. Extensions only give you more time to send your completed return to the IRS. 

  • A tax extension increases your chances of an audit. It doesn’t. Here’s what causes an audit.

  • A tax extension gives you more time to contribute to a retirement account (like an IRA) or a health savings account. Tax Day is the last day to contribute to IRAs and HSAs, even if you get a filing extension.

  • A tax extension gives you more time to file all your tax returns. No, it’s just for your federal income tax and federal gift tax. It doesn’t necessarily affect your state returns, though some states grant a state extension if you get a federal one. Extensions also don’t change the due date for business taxes, estate tax, inheritance tax, or a tax return for a trust. (Each of those has its own extension process.)

When will you get your refund if you file by the extension date?

The IRS says that most people should get their refund within 21 days after it accepts your return, assuming you e-file and use direct deposit.

However, the IRS is very backed up right now because of COVID-19 and multiple changes to the tax code in the past year. The good news is that if the IRS doesn’t send you a refund within 45 days, it may owe you interest on your refund. Interest rates vary but are currently 3%. (Unfortunately, any interest is taxable income and the IRS will send you a 1099-INT next year if you got at least $10.)

Why do we even have tax extensions?

The history of Tax Day and tax extensions is pretty arbitrary. Dates have been moved and changed many times in the past century.

Tax Day usually falls on April 15 but was moved to May 17 for 2021 and July 15 for 2020. that's also the day you need to pay any taxes you owe. Historically, the dates for filing and paying your tax bill weren’t always the same. At some points, people had basically a whole year after filing to pay their tax bill. Tax extensions have become more generous, though. A tax extension nowadays is six months, no questions asked, as long as you request it by Tax Day. For most of tax history, extensions were 30 days and only given if you were sick or away.

A brief history of Tax Day & tax extensions

  • Federal income tax was created when the 16th amendment was ratified and the first Tax Day was set as March 1, 1913. Back then you could get an extension of up to 30 days, but only if you submitted a written request and only in the event of illness or absence. One bright side was you had until June 15 to pay a tax bill.

  • Tax Day was moved to March 15 in 1918. If you owed tax, you were allowed to pay it in four installments: one-quarter by March 15, half by June 15, three-quarters by Sept. 15, and 100% by Dec. 15.

  • In 1943 the U.S. started requiring taxpayers to pay their whole tax bill by Tax Day (March 15) or face penalties. (Fun fact: The federal tax return in 1943 was called the Individual Income and Victory Tax Return.)

  • Tax Day was moved to April 15 in 1954.

  • Starting with 1990 income taxes, you could file Form 4868 to request an automatic four-month extension, giving you until Aug. 15 to file your tax return.

  • Starting with 2005 income taxes, you could get an automatic six-month extension, giving you until Oct. 15 to file.

Bonus tax fact: In 1939, only about 5% of workers paid income tax. FDR expanded the income tax during WWII, also adding a 5% Victory Tax, and then about 75% of workers had to pay income tax.

Image: Nastia Kobzarenko