Millions of taxpayers filed for an automatic extension this spring and now have until October 15 to send in their 2025 returns. Many of them believe the meter stopped in April. It did not. If you owed tax and did not pay it by the April deadline, the IRS has been quietly adding interest and, in most cases, a monthly penalty ever since, extension or no extension.
That distinction, time to file versus time to pay, is the single most misunderstood rule in the extension process. Understanding it now, in June, can save you real money by October, because every month you wait to pay adds another layer of cost.
What Form 4868 actually does
Form 4868 gives any individual taxpayer an automatic six-month extension of the filing deadline, no explanation required. What it explicitly does not do, as the form’s own instructions say, is extend the deadline for paying. Your 2025 tax was due in full on April 15, 2026. The extension only protects you from the penalty for filing late; it offers no protection from the costs of paying late.
That is why the IRS asks you to estimate your liability and pay what you can when you request the extension. People who paid a good-faith estimate in April and turn out to owe a little more will face only modest charges. People who filed the extension and paid nothing are the ones who get an unpleasant surprise in the fall.
The interest clock never stops
Interest on unpaid tax is set by formula, the federal short-term rate plus 3 percentage points for individuals, and it compounds daily. The IRS updates the rate every quarter and publishes it on its quarterly interest rates page. For individual underpayments the rate has been 6 percent this quarter, and the agency has announced it will rise to 7 percent for the quarter beginning July 1, 2026.
Interest cannot be waived for reasonable cause. Penalties sometimes can; interest, by law, keeps running until the balance is paid. On a $5,000 unpaid balance, interest alone runs roughly $25 to $30 a month at current rates, and it compounds, meaning next month you pay interest on this month’s interest.
The failure-to-pay penalty stacks on top
Separate from interest, the failure-to-pay penalty charges 0.5 percent of the unpaid tax for each month, or part of a month, that the balance is outstanding, up to a maximum of 25 percent. It sounds small, but it is relentless: that same $5,000 balance accrues another $25 in penalty every month, on top of the interest.
There is one softener worth knowing. If you set up an approved installment agreement with the IRS, the monthly penalty rate drops by half, to 0.25 percent, for any month the agreement is in effect. Combined with stopping the collection letters, that is a strong argument for getting on a payment plan rather than simply ignoring the balance.
What happens if you skip the extension entirely
The comparison that makes the extension look valuable is the failure-to-file penalty. Filing late without an extension costs 5 percent of the unpaid tax per month, ten times the failure-to-pay rate, also capped at 25 percent. When both penalties apply in the same month, the failure-to-file portion is reduced so the combined charge is 5 percent, but the filing penalty still dominates. Returns filed more than 60 days late trigger a minimum penalty set by law, a flat dollar amount adjusted each year for inflation, even if you owe relatively little.
The practical rule of thumb: always file something. If October 15 approaches and you cannot pay, file the return anyway and pay whatever you can. Filing on time with an unpaid balance costs you 0.5 percent a month. Not filing costs 5 percent a month. It is the most expensive procrastination in the tax code.
What to do between now and October
If you are on extension and expect to owe, do not wait for the October deadline to send money. Payments are credited when received, so a payment made this week stops interest and penalty from accruing on that amount immediately. You can pay online in minutes through IRS Direct Pay from a bank account, with no fee, and designate it as a payment toward your 2025 return.
If the balance is bigger than you can cover, the IRS offers payment plans that most taxpayers can set up online without speaking to anyone. Short-term plans give you up to 180 days at no setup cost. Longer-term installment agreements carry a setup fee but bring the reduced penalty rate mentioned above.
One more group should check the calendar carefully: taxpayers in federally declared disaster areas often receive postponed deadlines that move both filing and payment dates automatically, no Form 4868 required. If that applies to you, your dates may differ from everyone else’s, and the IRS lists the current postponements on its disaster relief pages.
The extension you filed in April was the right move if you needed it. Just treat it as what it is: permission to finish the paperwork later, not an interest-free loan from the government. Every dollar you send between now and October 15 is a dollar that stops costing you money.
Leave a Reply