Sunday, April 8, 2012
Taxpayers pondering whether to seek an extension on filing state and federal taxes this year should be aware they run the risk of piling up substantial late payment penalties if they don’t pay any taxes due when they request an extension.
With the deadline for filing state and federal income tax returns looming, Missouri Revenue Director Alana M. Barragan-Scott said the traditional April 15 filing deadline has been extended this year until April 17 because of the Emancipation Day holiday observed by federal employees in Washington, D.C.
Barragan-Scott said if a Missouri taxpayer receives an extension to file a federal income tax return, he will automatically be granted an extension of time to file his Missouri income tax return.
A copy of the federal extension (Federal Form 4868) must be attached to the Missouri income tax return when it is filed.
Barragan-Scott said a taxpayer who receives an extension of time to file a return must still pay the tax on or before the April 17 filing deadline.
If a taxpayer expects to owe Missouri state income tax, Missouri extension Form MO-60 should be attached with the tax return along with payment of the amount of taxes estimated to be due. A 5 percent penalty and interest will apply on any unpaid balance not paid by the original due date of the return. This year the due date is April 17.
Penalties are also imposed by the federal government on unpaid taxes due on April 17 even if a six-month extension to file a return is granted.
By properly filing a form for extension, taxpayers receive a six-month extension to file a return. To obtain the federal extension, taxpayers must estimate their tax liability on the extension request form and should pay any other amount now due.
By properly filing an federal extension form and paying any due taxes, a taxpayer will avoid the late-filing penalty. This penalty normally is 5 percent per month based on the unpaid balance that applies to returns filed after the deadline.
Any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 17. The current interest rate is 3 per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month.
Last month the United States Internal Revenue Service (IRS) announced a Fresh Start initiative offering penalty relief for unemployed taxpayers and self-employed individuals whose income has dropped.
A special six-month grace period applies only to wage earners who have been unemployed at least 30 consecutive days during the tax year and to self-employed people who had a 25 percent or greater reduction in business income during the tax year because of the economy.
To qualify for the Fresh Start initiative, qualified single taxpayers must also earn less than $100,000 and qualified married couples must earn less than $200,000 to be eligible for the six month grace period for filing and paying taxes. If they don’t make all payments due by Oct. 15, they must pay accumulated penalties and interest that otherwise would have applied.