Forgetting to file an extension can mean big fees for some, but not all, late filers. The key lies in understanding how the IRS assesses late filing penalties and relating that information to your income tax return. If you anticipate filing a late return, then you should understand whether filing an extension is of significant benefit to you.
An IRS extension moves the due date of your income tax return from April 15 until October 15. You request the extension by completing IRS form 4868 and mailing it to the IRS or submitting it electronically. If you mail in your extension, you should mail it to the address in the instructions for Form 4868. You can file your return any time during the extension period.
All individual tax returns are due on or before the April 15 deadline. However, tax penalties are only assessed on returns for which tax is owed. The failure-to-file penalty is 5 percent of the unpaid tax for each month the tax is due, while the failure to pay tax is 1/2 of 1 percent of the tax owed. The interest varies by quarter. Taxpayers who do not owe tax or are owed a refund do not need to file an extension because their late return will not be penalized.
Due to math errors and other mistakes in deductions and credits, there is a chance that your tax return contains errors. If the IRS verifies your return and finds that you made mistakes, that could leave you owing the IRS, in which case you will be assessed penalties and interest for the amount you owe. In this case, the IRS will assess penalties and interest from the date the return was due. It will not make allowances for the fact that you believed you were submitting a return for which there was no balance owed.
Even though you are not penalized for filing late if you owe no tax, you may still forfeit your right to claim a refund if you wait too long. The IRS statute of limitations only allows you three years from the date your return was due to file and claim a refund, after which you forfeit your right to the refund.