IRS Form 4868 – Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
What is it?
Taxpayers who are unable to file their federal income tax return by due dates may be entitled to a 6-month extension of time to file returns. IRS Form 4868 – also referred to as Application of Automatic Extension of Time to file U.S. Income Tax Return – is an application for tax extension for individuals who wish to buy more time to report the details of their income to the IRS.
It is interesting to note that that IRS Form 4868 does not extend the amount of time for the payment of tax liability, rather merely extends the amount of time allowed to file the tax return paperwork. Individuals can thus prevent late penalties from accruing but not the interest.
Who is it for?
As a general rule, any taxpayer can file Form 4868 to request an extension up to six months by the due date of his or her regular tax return. The request should be timely and present an estimate of the applicant’s tax liability for the tax period.
Taxpayers who are overseas on the expiry day of the six-month extension can request an additional two months by mailing a letter to the IRS elucidating reasons for extension.
Other than individuals, 1099 contractors, single member Limited Liability Companies and Schedule C Sole Proprietors can also use Form 4868 for tax extension.
Who is not required to file?
U.S. citizens living overseas or those individuals who are serving in a combat zone (deployed outside the U.S.) are not required to fill in Form 4868. They shall automatically receive a two-month extension.
Moreover, individuals will not file Form 4868 if they want IRS to figure their tax or alternatively are under court orders to file their return by the regular due date.
How to apply?
In order to gain that extra 6-month extension, individuals must estimate their tax liability for the year correctly, enter the total tax liability in the Form 4868 and file (through postal mail or electronically) by the regular due date of return.
An individual is not required to make a payment of the tax they estimate as due, Form 4868 does not extend the time to pay taxes. Remittances that individual applicants make with their application for extension will be considered as a tax payment.
Reasons for extension
The IRS does not demand any reasons for extension. Most applications are approved. In case of the request being turned down, the IRS will contact the individual itself. However owing back taxes and failure to pay according to a payment plan are some of the possible reasons of application rejection.
Penalties & interest
Individuals will owe interest on any unpaid tax pending by the regular due date of filing returns despite having qualified for the 2-month extension and/or having a good reason for not paying on time. The interest persists till the tax has been paid. Likewise, a late ‘payment’ penalty is charged for each month or part of a month the tax is unpaid. It can be avoided if the individual can present a sound reason for not having paid on time. On the contrary, a late ‘filing’ penalty is usually charged if the return is filed after the due date (including extensions). A penalty can be avoided if supported by a reasonable explanation for filing late.
Reasons for rejection
An extension request made to the IRS will normally take up to 48 hours to be validated and termed as accepted or rejected. IRS turns down certain tax extension applications if:
- The name and social security number (SSN) are incorrect and do not match the recently filed name and SSN.
- Failure to inform IRS about an adjustment such as change in name etc. IRS will hence be unable to map the tax information with the extension request.
- The Adjusted Gross Income (AGI) entered does not match the IRS records.
Individuals can reapply for extension; however they’ll be liable to pay fines and dues that may have been accrued if prescribed deadlines are not honored.