Bipartisan proposed legislation would prevent taxpayers from incurring penalties for failing to accurately calculate estimated payments for current-year tax liability when requesting tax filing extensions.
Dubbed the Simplify Automatic Filing Extensions Act of 2023 (SAFE), the bill was introduced May 22 in the House by Reps. Judy Chu, Democrat of California, and Ohio Republican Mike Carey. The SAFE Act would allow taxpayers requesting a six-month extension to file their federal taxes to automatically qualify and avoid penalty if they pay an estimated amount equal to 125% of their previous year’s liability.
“Requiring taxpayers who need an extension to calculate their often-complicated taxes twice in a year is repetitive and burdensome,” said Chu. “Making it easier to comply with tax law will mean more taxpayers pay what they owe, and government can continue providing essential services.”
“Filing for an extension does not have to be stressful, nor should it,” said Carey. “By simplifying the tax filing extension process and removing the fear of penalty, both taxpayers and the IRS will be better off.”
The bill would not cover individuals who did not file an income tax return for the immediately preceding tax year, or if that tax year was a so-called short tax year (less than 12 months). For joint filers, if the taxpayer requesting an extension did not file a joint return in the previous year, “the amounts required to be shown on the income tax returns of both spouses for such immediately preceding taxable year shall be taken into account,” the bill’s text reads.
As the IRS notes throughout its website, extensions to file are not extensions to pay taxes. Currently, there are three options for filing extensions:
- IRS Direct Pay, where taxpayers can make estimated payments and indicate that such payments are for an extension; the Electronic Federal Tax Payment System can also be used to make payments, or taxpayers can pay with a credit or debit card or a digital wallet
- E-Filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
- Submitting a paper Form 4868 (mandatory for fiscal year taxpayers)
“Taxpayers who pay as much as they can by the due date, reduce the overall amount subject to penalty and interest charges,” the IRS said at the end of this tax filing season (IR 2023-84). “The interest rate for an individual’s unpaid taxes is currently 7%, compounded daily. The late-filing penalty is generally 5% per month and the late-payment penalty is normally 0.5% per month, both of which max out at 25%.”
Eligible victims of natural disasters may receive automatic extensions, as can certain U.S. citizens or resident aliens living outside of the U.S. or Puerto Rico. Military or naval service personnel on duty outside the country are also eligible for a two-month extension without needing to make a request.
“Millions of American taxpayers file for federal income tax extensions every year,” said American Institute of Certified Public Accountants Vice President of Tax Policy and Advocacy Edward Karl. “The additional time is necessary for people who, for a variety of good reasons, are not able to file by the original due date. Reducing the stress and work associated with attempting to calculate a current year tax liability estimate for the purpose of filing an extension should improve taxpayer compliance and help practitioners better manage work during the tax busy season.”
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