If you haven’t filed your taxes yet, you may want to consider whether you’ll need to apply for an extension, and part of that process is estimating tax due. The deadline to file your 2022 tax return is April 18, but an extension can push that deadline to October 16.
For taxpayers missing documents or dealing with a complicated tax situation, this gives you additional time to file, though it doesn’t give you more time to pay.
Uncle Sam still expects you to estimate your tax bill and pay what you owe by April 18.
How To File a Tax Extension
You can get an extension by submitting Form 4868, “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return,” to the IRS. You’ll need to estimate your taxes due for 2022 before submitting your form.
While you’re not required to pay this amount to get the extension, the IRS recommends you do avoid the failure-to-pay penalty that’s charged each month the tax goes unpaid. Generally, the failure-to-pay penalty is 0.5% per month, however, it will never exceed 25% of your unpaid taxes.
You can steer clear of sky-high late payment penalties by paying the lesser of 100% of the tax due from your 2021 return or 90% of your estimated tax due for 2022 by April 18. If your 2022 adjusted gross income (AGI) is more than $150,000 and you file a joint return ($75,000 for married filing separately), the amount increases to 110%.
3 Ways To Estimate Your Taxes
If you’re not sure how much you owe, here are a few relatively painless ways to estimate your tax bill for 2022.
1. Reference What You Paid Last Year
The easiest way to estimate the tax you owe for 2022 is to base it on last year’s income, says Charles Corsello, an enrolled agent and founder of TaxCure LLC. “If you earned about the same amount as last year, you would owe about the same amount.”
Start by checking your total tax that was due for 2021—you can find this on line 24 of your 2021 tax return. Then, subtract from that amount the taxes you’ve already paid for 2022, including money your employer withheld from your paychecks. If you made estimated tax payments, you can subtract those payments as well. From there, subtract the tax credits you might qualify for. The child tax credit, child and dependent care credit and the earned income tax credit may reduce the amount you owe.
After you’ve taken your total tax due for 2021 and subtracted 2022 withholding, tax payments and eligible credits, you should get a decent estimate of what you owe for 2022, provided that nothing major has changed in your financial situation.
2. Estimate Your Taxable Income
But maybe you received a raise or landed a job with a larger salary in 2022. You’ll first need to calculate your taxable income to estimate the taxes owed, since your earnings changed. Do this by taking your gross income and subtracting exemptions and deductions you qualify for.
Then reference your tax bracket to determine tax liability. For 2022, marginal rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%. Where you fall depends on your income and filing status. Once you’ve figured out your total tax due, you can subtract money withheld from your paycheck for 2022 and any tax credits you qualify for to estimate your tax bill for the year.
If you get stuck with this calculation, you could work through the IRS’s 1040-ES 2022 Estimated Tax Worksheet. “It is long, but it provides directions and a form that you can use to accurately estimate what you will owe,” says Corsello.
For self-employed workers who don’t have taxes withheld by an employer, the Self-Employment Tax and Deduction Worksheet part of 1040-ES can help you estimate quarterly payments that need to be made on April 18, June 15, September 15 in 2023, and January 15, 2024.
3. Use an Online Tax Calculator or Tax Software
Typing in your income, filing status and other information into an online income tax calculator or tax software is another—possibly less cumbersome—way to determine your tax liability.
“Many tax software filing programs only charge you when you file, so you can get a ballpark number ahead of time,” says Corsello.
If you’re thinking about using a calculator or tax software, here are some potential pros and cons:
Pros:
- You don’t have to break out the pen and paper to do the math
- You may be able to auto-fill certain tax documents into the tax software
- Tax software may walk you through the process in a question-and-answer format that’s easy to understand
- When you’re ready to file your tax return, you may be able to easily go back to the tax software and complete what you already started
Cons:
- Limited or confusing instructions on calculators and software can lead to errors
- Tax software and calculators may not be able to handle complicated tax situations, and a tax professional could provide greater guidance
What If You Can’t Pay Your Tax Bill?
If you can’t pay taxes, don’t panic—but don’t ignore the situation either. Not filing your tax return at all comes with a steep tax penalty starting at 0.5% of your unpaid tax balance per month, up to a maximum of 25%.
Instead of not filing, the IRS has payment options you could sign up for to pay over time, or you could borrow money to pay what you owe.
Here are a few options to consider.
Use an IRS Payment Plan
Getting on an IRS payment plan doesn’t eliminate penalties on unpaid taxes—but it could reduce the cost. If you get on an approved payment plan, the late payment penalty is reduced. Signing up for the short-term plan is free, and it gives you 180 days to pay your tax bill.
Long-term repayment plans let you pay off what you owe in several monthly installments. The setup fee for a long-term plan is $31 if you sign up online for autopay but bumps up to $130 if you don’t sign up to make payments through direct debit.
Apply for an Offer in Compromise (OIC)
If you’re experiencing financial hardship or you owe an amount that would be difficult to pay due to your income, the IRS may be willing to settle your tax bill for less than what you owe with what’s called an “offer in compromise.” The settlement or compromise amount may be paid in a lump sum or installments, and you can apply for a compromise with Form 656, “Offer in Compromise.”
Should You File for a Tax Extension?
Since the IRS failure-to-file penalty is high, it makes sense to go ahead and file an extension if you suspect you won’t make the April deadline.
You also don’t have to handle all of this alone, especially in a complicated tax scenario. A tax professional could help you navigate your extension and tax return filing if you’re unsure what to pay and how best to pay it.
How To File a Tax Extension?
You have several options to file an extension with the IRS. First, you can opt to mail a paper Form 4868 directly to the tax agency. The IRS mailing address you should use depends on where you reside and if you choose to send a payment. You can also file a free extension using the IRS Free File program. One great advantage of using the program is that you can file your extension electronically. Finally, you can reach out to a tax professional and request they file an extension for you.
Whatever way you choose, it’s important you file your extension by the tax deadline, which is April 18, 2023. If you miss the due date, the IRS will reject your tax extension filing.
Frequently Asked Questions (FAQs)
What is a Form 4868?
A Form 4868, “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return,” allows a taxpayer additional time to file their federal income tax return.
What is the tax extension due date?
Once you file a valid tax extension with the IRS, you’ll have about six additional months to file your tax return. Generally, your tax deadline is extended to October 15. However, if the date falls on a holiday or weekend, the IRS will extend the deadline to the next business day. In 2023, October 15 falls on a Sunday, so you’ll have until Monday, October 16, to file your tax return with an extension.
How do you estimate total tax liability for an extension?
Generally, you can estimate your total tax liability a few different ways. First, you can choose to use an online tax calculator to determine your estimated tax payments. Also, you can choose to use the IRS 1040-ES Form to calculate your estimated tax payment. Finally, you can seek assistance from a tax professional to determine your estimated tax liability.
How much does it cost to file a tax extension?
The IRS doesn’t charge anything to file a tax extension. You can choose to mail a paper Form 4868 to the IRS on or before the tax deadline.
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