Overview

If you can’t pay a tax balance by the due date, there are two different needs to separate: (1) extra time to file your return, and (2) extra time or a plan to pay the tax owed. Filing an extension to file (Form 4868 for individuals, Form 7004 for many businesses) does not generally stop interest and failure-to-pay penalties on the balance due. To delay or spread payments you must request a payment plan or other relief from the IRS. (See IRS guidance on forms and payment options: https://www.irs.gov.)

Why this matters

In my practice working with small-business owners and self-employed taxpayers, I see avoidable penalties when people file a Form 4868 but assume they can delay payment without consequences. Making at least a partial payment, communicating with the IRS, and choosing the right plan typically cuts penalties and total interest.

Step-by-step best practices

  1. Calculate your best estimate now
  • Use last-year’s return, year-to-date statements, and any recent year-end adjustments to estimate tax liability. If you’re uncertain, estimate high rather than low—paying more now reduces penalties and interest.
  1. File the correct extension/form for filing only (if needed)
  • Individual filers who need more time to prepare a return should submit Form 4868 (automatic extension to file). Businesses use Form 7004 for many business returns. Remember: these forms extend filing deadlines, not the time to pay. (IRS: Form 4868 / Form 7004)
  1. Pay what you can electronically by the due date
  • Use EFTPS, IRS Direct Pay, or debit/credit via IRS payment options to make an immediate partial or full payment. Electronic payments post faster and reduce collection risk. (IRS payments: https://www.irs.gov/payments)
  1. Request a payment arrangement if you need more time
  • For more than a short delay, apply for a short-term payment plan (generally up to 120 days) or a long-term installment agreement through the IRS Online Payment Agreement tool. The short-term plan often has no setup fee; long-term plans may carry setup fees but spread payments. (IRS payment plans: https://www.irs.gov/payments/online-payment-agreement-application)
  1. Consider other relief options if payment is impossible
  • If you can’t pay at all, evaluate Offer in Compromise (to settle for less), Currently Not Collectible status, or penalty relief (including first-time abatement rules). These paths have strict eligibility and documentation requirements.
  1. Keep documentation and maintain communication
  • Save confirmation numbers, bank screenshots, notices, and correspondence. If the IRS sends a notice, respond promptly and keep records of any calls (date/time/representative).

Key rules on penalties and interest

  • Filing an extension does not eliminate interest; interest on unpaid tax continues to accrue from the original due date until paid.
  • The failure-to-pay penalty generally accrues monthly (commonly 0.5% per month up to a limit) and may be reduced if you have an approved installment agreement. Interest rates are variable and set quarterly by the IRS. Always verify current rates on the IRS website. (IRS penalties & interest: https://www.irs.gov/payments/penalties)

Common mistakes to avoid

  • Assuming Form 4868 gives you more time to pay. It does not.
  • Waiting until the last day to file an extension or to apply for a payment plan—online systems can be slow, and last-minute errors cost money.
  • Failing to pay at least something. Even a partial payment lowers penalties and interest.

Practical tips I use with clients

  • If cash is tight, prioritize paying estimated taxes and required federal/state withholding first.
  • If you expect a refund from another year or return, file and claim it—refunds can offset balances or be applied to future liabilities.
  • Use the IRS Online Payment Agreement tool to avoid phone queues and to get an immediate determination for many simple installment requests.

When to get professional help

  • If your balance is large, you’re facing enforced collection (levy or lien), or your tax situation is complex (business payroll liabilities, trust taxes), consult a CPA, enrolled agent, or tax attorney. In my experience, early engagement with a pro preserves options and reduces long-term costs.

Internal resources

Frequently asked questions

  • Can I extend my payment deadline by filing Form 4868?
    No. Form 4868 extends only the time to file. To delay payment you must request and be approved for a payment plan or use other IRS relief options. (IRS)

  • Will the IRS waive penalties if I show hardship?
    The IRS may grant penalty relief for reasonable cause (including certain hardships) or first-time penalty abatement, but interest generally remains. Keep documentation and apply as soon as possible.

Professional disclaimer

This article is educational and not personalized tax advice. For guidance tailored to your situation, consult a licensed tax professional (CPA, EA, or tax attorney). Authority references: IRS forms and payment guidance (irs.gov) and Consumer Financial Protection Bureau resources on managing tax debt.

Sources and further reading