IRS Payroll Taxes-Failure to Deposit Penalty & Consequences for Employers and Workers

Employers know that payroll taxes are held in trust for the U.S. government for payments from employee’s tax withholding (s) for the workers taxes, Social Security and Medicare. In addition, for the company’s share of Social Security Taxes they are required to pay.

There are several penalties that employers face for not complying with filing, depositing timely, paying balances, fraud, and others. These penalties plus interest can add up quickly if not paid accordingly.

The failure to deposit penalty is one of those penalties that companies face for not depositing or paying balances due when required according to the amount of payroll taxes due.

The following chart lists the amount of Failure to Deposit Penalty as shown on the IRS website:

For amounts not properly or timely deposited, the penalty rates are as follows.

Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability.

2%

Deposits made 1 to 5 days late.

5%

Deposits made 6 to 15 days late.

10%

Deposits made 16 or more days late, but before 10 days from the date of the first notice the IRS sent asking for the tax due.

10%

Amounts that should have been deposited, but instead were paid directly to the IRS, or paid with your tax return. But see Payment with return , earlier in this section, for exceptions.

15%

Amounts still unpaid more than 10 days after the date of the first notice the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier.

The amount of penalty can be as much as twenty-five percent of the unpaid payroll taxes calculated for a maximum of five months if not paid within this time-frame.

Employers attempt to get a waiver/penalty abatement of penalties. It is not common for the Internal Revenue Service to abate these penalties. Very difficult for the money does not belong to the employer. It is the employee’s money and the companies tax expense (share) that is not being paid timely.

Since many employers keep on accruing payroll taxes due to financial constraints. It is difficult to get caught up with past due taxes and keep current without causing a financial strain.

Many payroll tax debtor companies and owners make the mistake of paying the past due payroll taxes first and fail to pay the current federal tax deposits. Big Mistake.

One of the requirements is that an employer be current in order to qualify for any delay in paying past due taxes via 30 days, request for installment agreement, hardship request (keep in mind penalties and interest keep on accruing) or even an offer in compromise. Request for Penalty abatement do not stop interest from accumulating.

Therefore, keep current with paying federal tax deposits and seek tax professional advise on how to handle past due payroll taxes. The Internal Revenue Service Collection Section does not stop collection action in cases which deposits are not current.

Furthermore, once a case is in collection status. The IRS can file Notice of Federal Tax Lien that affects a company’s and owners credit rating. Garnishments follow when arrangements are not effectively completed to secure the best solution for a payroll debtor case.

In fact, the IRS is now also seeking court injunctions against businesses that accumulate large payroll debts. It is best to place these types of businesses out of business than allow them to continue operating. Even when jobs are lost, and the money will not be recovered.

Criminal prosecution for failure to pay employment taxes is the major consequence of non-payment of payroll taxes. Again, these taxes are not a company’s money to do with whatever they want. It does not belong to them. Thus, the payroll tax debtor is in fact stealing from the workers tax monies and using for business operations etc.

The IRS budget has been affected in the last ten years by Congress and Presidential budgets. There are insufficient number of payroll tax auditors, collection officers, administrative and other employees that are part of the tax agency.

These are some of the reasons why many companies roll the dice and select to continue operating while not paying over payroll taxes or even reporting workers correctly by misclassifying them as independent contractors or paying these workers cash.

It is not until workers file their tax returns and find that they owe taxes that they get mad and request assistance on how to report the companies for failing to pay the taxes and report them as employees.

Folks you cannot have it both ways. Employers need to make sure workers are reported and classified correctly to prevent payroll tax audits and debts that can ruin a business.

Workers need to make sure the companies are treating them correctly when it comes to tax withholdings, independent contractor vs employee etc. The burden is also on the workers for they are being affected as well.

Workers think that my accepting payment for work performed via cash or other means is great for no taxes must be paid. Then, when retirement, worker’s compensation, unemployment issues kick in. This is when problems arise for both the worker and the employer.

Investigations by governmental agencies, insurance issues for employers and no money for the worker in many cases.

For additional information and resources go to www.advocatetaxgroup.com

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