Short answer: an extension is an extension to file, not an extension to pay. If you owe tax, that money was due on April 15. Period.
This is the single biggest misconception we see. Every spring, business owners and individuals file Form 4868 (individual) or Form 7004 (business), then breathe a sigh of relief like they've bought themselves six months of peace. They haven't. They've bought themselves six months to send in the paperwork. The check, if you owe one, was supposed to be in the mail on April 15.
What you actually owe if you "extend" with a balance due:
- • Failure-to-pay penalty: 0.5% of the unpaid balance per month (or part of a month).
- • Interest: Currently ~8% annual rate, compounded daily, on the unpaid balance.
- • No failure-to-file penalty — that's the one thing the extension does protect you from (5% per month, which is much worse).
What you should do instead
Before April 15, estimate what you'll owe and pay that amount with your extension. You don't need a finalized return — you need a reasonable estimate. Use last year's return + adjustments for any big changes (sold a property, took a big bonus, switched to S-corp). Pay 100% of last year's tax (110% if AGI > $150K) and you're in the "safe harbor" for estimates regardless of what your actual final number is.
Common scenarios we untangle
"I filed an extension but didn't send any money." The clock has been ticking since April 16. Pay what you can NOW — even a partial payment cuts your penalty + interest. Then file the return as fast as you can.
"I sent a check with the extension but it wasn't enough." You're still hit with failure-to-pay penalty + interest on the shortfall. Less painful, but not zero. File the return as fast as you can to lock the balance.
"My CPA filed the extension. I assumed they'd taken care of payment." Most extension prep is "file only" unless you explicitly arrange payment with them. Ask your preparer directly: "Was money sent with my extension? How much?"
The honest truth
The extension is a useful tool when your records aren't ready by April 15. It's not a way to delay paying tax. The IRS designed it that way intentionally — they want their money on time even if your paperwork is late. If you needed an extension because cash is genuinely tight, that's a different conversation: short-term installment agreements, currently-not-collectible status, or offers in compromise might apply.
If you filed an extension and aren't sure what your situation is, send us your transcript or your draft return and we'll tell you exactly what you owe and what the cleanest path forward looks like. Usually it's less scary than you think — but ignoring it makes it worse fast.
Got an IRS letter about late payment, penalties, or interest?
Beata is an Enrolled Agent — she can negotiate penalty abatement (first-time abate is real, and it works) and represent you directly with the IRS so you never have to call them yourself.
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