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This is an excerpt from the Personal Finance team’s weekly Twitter Space, “This week, your wallet.” Check out the latest episode here.
Tax Day is fast approaching. The deadline to file a federal tax return for most Americans just over two weeks away, on Tuesday, April 18.
Here’s what late filers need to know, according to CNBC’s Kate Dore, a personal finance reporter and certified financial planner.
1. You may be able to file your taxes for free
Certain taxpayers can leverage free resources when filing a return.
For example, the IRS Free File program offers free, guided tax preparation online. The program, delivered via a public-private partnership, is available to taxpayers with an annual adjusted gross income of $73,000 or less in 2022.
Free File is available to 70% of taxpayers, but few use it — and they may inadvertently pay to file a return.
2. Your tax refund may be smaller this year
The IRS issued 54 million refunds as of March 17. About 75% of the processed tax returns have gotten a refund.
The average refund was $2,933, compared to $3,305 at the same point last year. The reduction is tied to expired pandemic-era aid like boosted child tax credit and earned income tax credit payments, for example.
3. Common mistakes may trip you up
Common mistakes on a tax return might delay processing of the return or a refund you’re owed.
Among the biggest: Missing tax forms.
That might occur, for example, if you’re a gig economy worker who received a 1099 form but didn’t report that income on your tax return. Or perhaps you didn’t report investment income because you didn’t get a copy of your form in the mail — though it’s likely available online.
However, the IRS receives copies of those tax forms and knows if that information is missing on your return.
Other common mistakes include incorrect spelling or digits for your name, birthdate, Social Security number, or bank account and routing number information.
Not filing electronically and not asking for direct deposit may also delay your tax refund.
4. You can get an extension to file — but not to pay
Taxpayers can request a six-month extension to file their federal return.
This might make sense if you’re missing a tax form, for example. Taxpayers can request an extension for free online via IRS Free File regardless of their income.
The kicker: You can’t get an extension to pay your federal tax bill. You must pay that bill by the April 18 deadline. You can estimate that bill by going through the process on tax software and using estimates for missing forms.
Another caveat: Taxpayers who ask for a federal extension must request one separately for their state tax return.
5. There are penalties for not filing and not paying
The IRS levies financial penalties for failing to file a return, and for failing to pay your taxes.
Not filing a return results in a penalty of 5% of your unpaid balance per month or part of a month (up to 25%) plus interest (which is currently 7%).
Failing to pay a tax bill results in a lesser 0.5% penalty of your unpaid balance per month or part of a month (up to 25%) plus interest.
If you can’t afford to cover your full balance, you may apply for an installment agreement, a long-term monthly payment plan.