What is a tax extension and should you file one?

Update: Due to the COVID-19 pandemic, the IRS has extended Tax Day to July 15th. You can still file a tax extension if you need more time.

Federal income tax returns are usually due April 15, Tax Day. (In years when that date falls on a weekend or holiday, taxes are due the next business day.) That means you need to file your federal tax return and pay your tax bill by that date.

If you need more time to file your return, the federal government allows taxpayers a six-month extension, giving you until October 15. Filing an extension can help you avoid filing your taxes late, which could mean hefty fines.

Keep in mind that this is only an extension to file your tax return. If you underpaid your taxes throughout the year or otherwise owe money, you still need to pay your tax bill by the April deadline.

Who can get a tax extension

All taxpayers can get the six-month extension. The IRS does not require any reason or justification when you request an extension. All you need to do is fill out IRS Form 4868 on time.

Automatic extension for taxpayers outside the country

Certain taxpayers who qualify as “out of country” will receive an automatic two-month extension without needing to fill out any forms.

The IRS uses the term “out of country” to refer to people whose main residence and main job are outside of the U.S. or Puerto Rico. This includes people on military or naval duty outside the country.

Anyone who qualifies automatically has two extra months (until June) to file their tax return, to make any necessary payments, or to file for the six-month extension. If you file for that extension, you will only get an additional four months, taking you to the same October deadline as everyone else.

For more information on whether or not you qualify for the automatic two-month extension, check out IRS Publication 54 or talk with a financial planner.

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Reasons to get a tax extension

If you fill out Form 4868 correctly and on time, the IRS will automatically grant you an extension. That means you don’t actually need a reason to ask for one. However, there are some common reasons that people ask for extensions:

• Missing tax forms or documents

• Waiting for a replacement document

• Something unexpected comes up, like an illness

• You’re on vacation

• You spend winters away from your primary residence

• Your finances changed and you want time to get organized

• You want more time to contribute to a SEP, SIMPLE IRA or SIMPLE 401(k)

Ultimately, the goal is to make sure your tax return is complete and accurate. If you think that you need more time in order to meet that goal, get a tax extension.

One thing to note is that the contribution deadline for most retirement accounts is the same as the April tax deadline. Only a few accounts for small businesses and unemployed individuals give you until the end of an extension to contribute.

Reasons not to get a tax extension

Since the IRS will give you an extension, no questions asked, is there any reason not to get one?

One major reason NOT to get an extension is to put off paying your tax bill. Since a tax extension only gives you more time to file, you still always need to pay your taxes by the April deadline. Otherwise you’ll pay a late penalty and interest will accrue on the amount you owe.

As mentioned above, the contribution deadline for almost all retirement accounts is Tax Day. So an extension will not give you more time to contribute to a 401(k), traditional IRA or Roth IRA. The same is true for health savings accounts (HSAs).

Another reason you may not want to file an extension is if you have no tax liability and don’t plan to file a federal return. If your income for the tax year was equal to or less than the standard deduction, it isn’t taxable. In that case, you don’t need to file a tax return.

But if you file for an extension, the IRS may think that you’re planning to file a return. That could lead to confusion later on and it’s possible that after the extension deadline, the IRS mistakenly charges you a fee you for not submitting a return.

How to file for a tax extension

In order to get an extension, you will need to file Form 4868 by the April tax filing deadline. You can file the form electronically through your regular tax preparer or tax filing service. You can also print and mail the form.

Form 4868 is a simple form that takes up less than half a sheet of paper. It has two parts.

Part I: Identification

Part I has three lines and they’re all for identification. You will enter your name and address on Line 1. If you’re filing a joint return, don’t forget to put both of your names. The name you put first should be whichever name you plan to put first on your actual tax return.

Line 2 is for your Social Security number. Line 3 is for your spouse’s Social Security number if you’re filing a joint return. Make sure you put the Social Security numbers in the same order that you put your names.

Part II: Your individual income tax

Part II has six lines that require you to put more information about your expected tax return. Line 4 (the first line of Part II) asks for your expected tax liability. This is how much tax you’re supposed to pay for the year.

To estimate your tax liability, it’s easiest to use an online calculator. Many tax filing services have free calculators that you can use without the need to actually file your return. Since this is just an estimate, it’s alright if you don’t know your exact liability. Your liability will probably be similar to the previous year unless your finances changed.

If you prefer, you can also manually calculate your tax liability by using the federal income tax brackets. If you calculate it yourself, don’t forget to account for the standard deduction (or itemized deductions if you plan to itemize).

Line 5 of Part II asks for how much you already made in tax payments over the year. You can find this amount by looking at your pay stubs. If you made estimated tax payments throughout the year, include those as well.

When you subtract the amount on Line 4 from Line 5, you get Line 6. This is your tax bill. For most people, this number is negative. That’s because you overpaid slightly throughout the year and so you get a tax refund. If that's the case, you can enter “0” on Line 6.

If you do owe money, you will need to pay that bill by the April deadline. Line 7 is where you write in how much of a payment you’re making. It’s always best to pay your entire bill or as much of it as you can, otherwise you will pay late fees. If you aren’t sending a payment, you can leave Line 7 blank.

Line 8 is a box that you should check if you’re a U.S. citizen or resident who qualifies as “out of country.” You can qualify if your main residence and job are outside of the U.S. or Puerto Rico. You can also qualify if you’re on military or naval duty outside the country.

Finally, Line 9 is a box you should check if you file either Form 1040NR or 1040NR-EZ, and if you didn’t have any earnings that you actually need to pay federal income tax on.

Getting a state tax extension

Requesting an extension for your state return is similar to getting a federal tax extension. In a handful of states, you automatically get an extension if you filed for a federal extension. Some states have their form that’s similar to federal Form 4868.

Other states have their own rules and deadlines. For example, all Virginia and Colorado taxpayers get a six-month extension even if they don’t ask for one.

Check with your state’s tax department to learn how to properly file an extension.

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