DEFINITION of 'Filing Extension'
An exemption made to both individual taxpayers and businesses that are unable to file a tax return by the due date. Individual taxpayers can complete IRS Form 4868 for an automatic six-month extension. However, the extension of time to file does not provide a corresponding extension for payment of taxes owed.
BREAKING DOWN 'Filing Extension'
The filing extension for individuals was increased from four to six months under recent legislation. Taxpayers who cannot pay their taxes will not only gain nothing by filing an extension, they will also pay a much greater penalty than those who file and cannot pay. The failure-to-file penalty is usually 5% of the total amount owed per month, while the failure-to-pay penalty is only 0.5% of the amount owed per month.