IRS Grants Extension: File Now, Pay Later

I was appointed the finance correspondent for Senior Life Advisor, an online magazine for investors near or in retirement. The articles for Senior Life Advisor were designed to offer actionable information as well as items of interest about economics, investing and personal finance.

The IRS has used president’s national emergency declaration to make an unprecedented 90 day extension of the deadline for tax payments due on April 15.

Historically, the IRS has automatically granted a six month extension to any taxpayer who requested it. However, these extensions required taxpayers to pay most of what they owed by April 15. And while there was no penalty for filing an extension, taxpayers were charged interest. Currently this rate is about 5% annually.

Under the most recent declaration however, taxpayers avoid interest charges when they payment by 90 days. Taxpayers must however file their tax returns by April 15, even if they are delaying payment. Failing to file has always been, and will continue to be expensive: 5% of the unpaid taxes due per month, up to 25%.

The relief offered by the feds appears to be the first time ever the IRS has given taxpayers a payment extension. A review of historical records, including the agency’s historical timeline mentions nothing about an extension. The timeline is oddly interesting. For instance the IRS was formed in 1862 by Abraham Lincoln to help pay for Civil War expenses. The income tax began in 1913. And the current president’s refusal to disclose his tax returns? Blame James Garfield, a representative from Ohio and later the 20th president of the U.S. who in 1870 forbade publication of tax returns.