You can file for extension. However, it doesn't buy you more time to pay any taxes you may owe. That means that if you don’t pay your tax balance by the filing deadline (April 15 in 2019), you'll get hit with penalty and interest.
Even if you can’t pay it all immediately, pay as much as you can. Penalty and interest are based on the amount you owe and how long you owe it. Late payment penalties are calculated at 0.5% of the unpaid tax balance per month. The maximum you can be charged in late payment penalties is 25% of the unpaid tax.
For example, if your tax balance is $2,000:
- Penalty per month = $2,000 x 0.5% = $10
- Total possible late payment penalty = $2,000 x 25% = $500
If you know you’re going to be out of the country on tax day, there is a two-month extension that allows you to hold off paying taxes without penalty, but you will still be assessed interest as of the day after the tax filing deadline.
Interest on unpaid tax compounds daily from the original due date of the return until the date you pay in full. The rate is calculated as the federal short-term interest rate, currently .81% plus 3%. Interest is applied daily, so for each day you're late, you’ll owe 0.0082% of the balance.
For example, if you owe $2,000 in taxes and don’t pay by the due date, you’ll pay:
- .81% + 3% = 3.81% annual interest
- 3.81% annual interest divided by 365 days = .01%
- Penalty per day: $2,000 x 0.01% = $0.20
Note that compounding interest results in a daily recalculation of the principal amount plus
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