Consequences for Failure to Pay Payroll Taxes

With all the various tasks to handle when running a business, you can be sure there will be some deadlines you miss, but one deadline you don’t want to miss is paying your payroll taxes (the IRS refers to them as employment taxes). There are several reasons why businesses fail to pay their payroll taxes – your tax depositing schedule changed, you borrowed from payroll tax funds or a natural disaster prevented you from paying taxes on time.

Regardless of the reason, if your business has fallen behind and become delinquent on paying its withholding and payroll tax obligation, the IRS and other taxing agencies are authorized to forcibly collect the taxes due, and you will be obligated to pay substantial penalties and accrued interest. Civil and criminal employment tax enforcement is among the U.S. Department of Justice Tax Division’s highest priorities.

What are Payroll Taxes?

As a business, you are required to withhold several employment taxes and insurances from employee paychecks. If you don’t periodically remit these amounts to the U.S. Treasury, the IRS will assess a failure to deposit penalty (FTD). Payroll taxes are some of the required employment tax withholdings. These are some taxes you may need to handle:

  • Federal and state income taxes
  • Social Security and Medicare taxes (FICA tax)
  • Federal and state unemployment taxes

You must pay the tax even if you failed to withhold the tax from your employee. If a business doesn’t make payments on time, the IRS can impose a penalty for these unpaid taxes, called a Trust Fund Recovery Penalty (TRGP). The IRS can impose the TFRP for:

    • Willful failure to collect tax,
    • Willful failure to account for and pay tax, or
  • Willful attempt in any manner to evade or defeat the tax or the payment thereof.

Penalties

There are several penalties that can be levied on a business who has failed to pay payroll taxes. The Publication 15: Employer’s Tax Guide give a much more in-depth discussion on penalties. These penalties are for withholding and taxes (FICA taxes Form 941) but also may apply to other similar forms. The FTD penalty structure has four tiers, with the penalty amount increasing over time. The amount of the FTD penalty is as follows:

    • 2 percent of the unpaid deposit for payments that are 1 to 5 days late
    • 5 percent for tax payments that are 6-15 days late
    • 10 percent for deposits that are more than 15 days late or made within 10 days of receiving the first IRS notice requesting a tax payment
    • 15 percent for deposits not received within 10 days after receiving the first IRS notice demanding payment

Get Help from Our Chicago Payroll Tax Lawyers Today

At North Suburban Legal Services LLC, our Illinois payroll attorneys are committed to providing sophisticated and effective legal guidance to small and midsize business owners facing inquiries from the Internal Revenue Service. To learn more about what we can do for you, please contact our law firm today at (312) 909-6089 for a free, strictly confidential initial consultation. With an office in Chicago, we represent taxpayers throughout the region, including in Cook County, Will County, DuPage County, Lake County, and McHenry County.

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