What is a tax extension & should you file one?

Your federal income tax return is due May 17, Tax Day 2021. You need to file your federal tax return and make any necessary tax payments by that date. If you need more time to file your return, the federal government offers taxpayers a six-month tax extension, giving you until October 15. (Tax Day is usually April 15 and even though Tax Day was pushed back in both 2020 and 2021, extensions still only give you until October to file.)

Filing an extension can help you avoid hefty fines from filing your taxes late, but 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 any tax bill by Tax Day .

Who can get a tax extension

All taxpayers can receive a tax filing 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 until June to file their tax return, to make any necessary payments, or to file for an 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. You don’t actually need a reason to ask for one, but there are some common reasons that someone requests an extension:

• You have missing tax forms or documents.

• You're waiting for a replacement document.

• Something unexpected, like an illness, comes up and you can't file on time.

• You haven't been able to meet with your tax preparer (as during COVID-19 lockdowns).

• You’re on vacation.

• You spend winters away from your primary residence.

• Your finances changed and you want time to get organized.

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.

Reasons not to get a tax extension

If your goal is to avoid making a tax payment, an extension won't help. A tax extension only gives you more time to file, and you still always need to pay your tax bill (if you we one) by Tax Day. Missing the deadline will result in a penalty plus interest on the amount you owe.

A tax extension will not usually give you more time to contribute to a 401(k) or IRA. The contribution deadline for most retirement accounts is Tax Day. The same is true for health savings accounts (HSAs).

The income tax filing extension also doesn't impact other types of filing deadlines, such as any inheritance tax or estate tax returns you may need to file.

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. Your income for the year isn't taxable if it was equal to or less than the standard deduction. If you don’t need to file a tax return but 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 Tax Day. You can file the form electronically through your regular tax preparer or tax filing service. You can also print and mail the form. (Learn more about the best tax filing services for 2021.)

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

Form 4868 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 and line 3 is for your spouse’s Social Security number if you’re filing a joint return. Write your Social Security numbers in the same order that you wrote your names.

Learn more: Should spouses file jointly or separately?

Form 4868 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 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. Since this is just an estimate, it’s perfectly fine if you don’t know your exact liability. Looking at your tax liability from last year's tax return is also helpful, especially if your income and finances haven't changed much.

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 how much you already made in tax payments over the year. You can find this amount by looking at your W-2 forms or 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 "balance due" and it's negative for most people since most taxpayers overpay slightly throughout the year and get a tax refund. If your line 6 value is negative, enter “0” on Line 6.

If you do owe money, you will need to pay that bill by the filing deadline (Tax Day). 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 generally 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.