If I filed for a 120 day extension to pay my taxes, how is the interest accrued?

Question

The woman on the phone said interest accrues DAILY but i find that difficult to believe otherwise no one would ever be able to pay off their taxes...

Answer 1

6% compounded daily is not that much more than 6% simple interest.

The letter confirming the 120 day extension will give you the amount for day 120.

Just to clarify.  The IRS interest rate right now is running 5-6%.  120 days is 4 months so it's about 2% of the total.  (Or .5% per month--one post forgot the decimal point).  The IRS penalty rate is .5% per month.  Again, roughly 4 months, so another 2% of the total.   For $2000, that 4 months is going to cost you at least $80.

Answer 2

You're talking about less than a dollar maybe in difference on 6% of 2000 for 4 months / daily vs monthly accrual - relax already -

Answer 3

For 120 days figure 2% interest and 2% late payment penalty. That will be close enough.

Answer 4

The following link will help explain the interest and penalties involved in late filing.  You should note that filing an extension without sending in the tax do is not a valid extension and will not relieve you of penalty or interest.  The present rate is 5% penality and 5% interest per month, however it does increase daily.  If you go into collection things get worse.

http://www.irs.gov/businesses/small/arti...