March 23, 2025 09:00 AM PST
(PenniesToSave.com) – Tax extensions have traditionally provided Americans with a useful backup plan when tax season gets overwhelming. Whether it is a delayed W-2, missing business receipts, or simply needing more time, filing for an extension typically buys taxpayers six extra months to submit a completed return. However, in 2025, the rules of the game have shifted in a way that could make delaying your taxes a costly mistake. The average American is now facing a federal tax system that is under-resourced, slower to respond, and less forgiving of errors. Filing an extension this year could mean penalties, delayed refunds, and financial headaches that used to be rare.
IRS Budget Cuts Are Slowing Everything Down
In recent months, Congress has significantly reduced the Internal Revenue Service’s operating budget, reversing much of the funding that had previously been allocated for hiring, modernization, and enforcement. These cuts are not just impacting large-scale corporate audits or complex investigations. They are affecting day-to-day operations that every taxpayer relies on, including processing returns, issuing refunds, and answering questions on the helpline.
The IRS had been making progress in recent years, catching up on the historic pandemic-era backlog and rolling out digital upgrades to make filing simpler and faster. With reduced funding, many of those improvements are now on pause or being scaled back. Hiring freezes are in place. Temporary workers brought in during past tax seasons are being let go. Wait times for customer service are growing longer, and taxpayers who rely on paper correspondence or traditional filing methods are being hit especially hard.
According to the Treasury Department, a drop in enforcement funding is likely to reduce audit coverage and tax collection efficiency. But for regular Americans, the more immediate concern is the bottleneck in processing. If fewer people are reviewing returns, correcting errors, or issuing checks, the entire system slows down. This means more people waiting longer for their money, with fewer answers available when problems arise.
Why Filing an Extension Could Backfire
On paper, a tax extension gives you until October 15 to file your return. Many Americans assume that means the entire process is on hold. In reality, the IRS only gives you more time to submit the paperwork, not to pay your taxes. Any taxes owed must still be estimated and paid by the regular April deadline, even if you plan to file your full return later.
If you underestimate what you owe, or fail to make a payment at all by the April cutoff, you begin accruing penalties and interest from day one. That can turn a manageable tax bill into a much larger financial burden, especially when compounded over several months. What makes this worse in 2025 is that the IRS is slower to respond to overpayments, adjustments, and corrections. If you overpay in April and file the correct return in October, you may be waiting weeks or months longer than usual to get your refund back.
Additionally, fewer resources at the IRS mean it is more difficult to fix errors in a timely manner. A mismatched document, a missing form, or a flagged deduction can hold up your entire return. In a normal year, the IRS might resolve the issue quickly. This year, the delays could be extensive, leaving many taxpayers in limbo during a time when every dollar counts.
How Delays and Penalties Hurt the Average Household
For the average American family, especially those living paycheck to paycheck, the tax refund is often a crucial financial event. It may be used to catch up on bills, pay off debt, cover tuition, or handle unexpected medical expenses. A delay in receiving those funds could lead to missed payments, increased credit card balances, or even eviction risks.
Households with children may also face complications with tax credits like the Child Tax Credit or the Earned Income Tax Credit. If filing is delayed or errors are not resolved quickly, these benefits may not be received in time to help with urgent needs.
Self-employed individuals and small business owners face unique challenges as well. They often rely on tax season to settle accounts, manage cash flow, and qualify for loans or grants. If tax documents are late, incomplete, or incorrect, it can affect their ability to stay afloat. With fewer IRS employees handling complex filings, entrepreneurs and gig workers could face longer review periods and fewer opportunities to get questions answered.
Seniors and retirees, many of whom are not fluent in electronic filing systems and rely on phone support or mail correspondence, may find this year’s system especially difficult to navigate. With limited digital literacy and fewer IRS agents on hand to assist, they risk being left behind or penalized due to technicalities they do not understand.
What You Can Do to Stay Ahead
To avoid the financial and logistical pitfalls of a delayed filing this year, the smartest move is to file on time, even if your return is not completely finalized. Submitting a return based on your best available information, along with a conservative estimate of any taxes owed, can help you avoid penalties and ensure that the IRS processes your information sooner rather than later.
If you expect to owe taxes but are unsure of the exact amount, it is better to overpay slightly. Any excess will be refunded once your final return is processed, which is preferable to accumulating interest and late-payment penalties.
Another critical step is to file electronically rather than by mail. E-filing is faster, more secure, and less prone to delays or human error. The IRS gives priority to electronic returns, especially those with direct deposit information for refunds. Using reputable tax software or working with a certified tax preparer can also improve accuracy and reduce the risk of mistakes that trigger audits or penalties.
If you must file an extension, try to file your completed return as soon as possible afterward. Do not wait until the October deadline. The earlier you file, the higher your chances of getting your return processed before the IRS experiences another seasonal backlog in the fall.
Final Thoughts
The 2025 tax season is shaping up to be unlike any other in recent memory. While extensions have always been a safety valve for those who needed more time, the combination of IRS budget cuts, reduced staff, and slower response times has turned that safety valve into a potential trap. For most Americans, the best financial decision this year is to file on time, pay as much as you reasonably estimate you owe, and avoid placing your finances at the mercy of an overwhelmed federal system.
The stakes are higher than they seem. A delayed refund or unnoticed error could disrupt your financial stability for months. With so many systems running slower and with fewer people available to help, the surest way to protect yourself is to stay proactive, file early, and double-check your math before hitting submit.