If you run a business with full- or part-time employees, chances are you’re aware of payroll taxes. But what happens if you miss the deadline due to a cash crunch, clerical error or oversight? This guide explores penalties for unpaid or late payroll taxes, how they work and how to avoid incurring these pesky expenses.
What Are Payroll Taxes?
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Payroll taxes are payable by companies to the Internal Revenue Service (IRS). The responsibility for withholding the funds falls on the employer, along with quarterly filings of payroll tax returns. If you miss the filing and/or payment deadline, you’ll be subject to penalties by the IRS.
Payroll Taxes You Are Required to Pay
FICA Taxes, Form 941, and Form 944
FICA (Federal Insurance Contributions Act) taxes, or Medicare and Social Security taxes, are withheld from employee wages. The IRS requires payment every two weeks if your company’s tax liability was over $50,000 in the prior four quarters. If it was below $50,000, you’re required to pay monthly.
For semi-weekly depositors, here’s when payments are due:
- If employees are paid on Wednesday, Thursday or Friday, payment is due by the following Wednesday.
- If employees are paid on a Saturday, Sunday, Monday or Tuesday, payment is due by the following Friday.
If you’re a monthly depositor, payments are due by the 15th day of the following month.
A quarterly tax return (IRS Form 941) must also be filed for each quarter by the final day of the following month. To illustrate, if the quarter ends in March, you’ll file by April 30th to avoid late filing penalties.
Quick note: If your annual liability for FICA and federal income tax is $1,000 or lower, you’ll file Form 944 (Employer’s Annual Federal Tax Return) once a year instead of Form 941 each quarter.
Federal and State Income Taxes
Federal and state income tax is also reported on Form 941 and paid in accordance with the payment schedule listed above. Be mindful that the filing and payment deadlines for state and local income taxes will depend on where you reside.
Federal Unemployment Taxes and Form 940
Companies who meet at least one of these criteria are responsible for federal unemployment tax:
- You have at least one employee for 20 or more weeks in a year.
- You pay $1,500 or more to employees in one or more quarters throughout the year.
The payment schedule varies by tax liability, but you’re required to file the Employer’s Annual Federal Unemployment (FUTA) Tax Return (IRS Form 940) at the end of the year.
State Unemployment Taxes
You’ll generally be liable for unemployment taxes in the states where you do business and employ workers. Again, the payment schedule and rates vary, but you’ll typically remit payment quarterly.
Employee Wage and Tax Reporting Forms
Companies must send IRS Form W-2 (Wage and Tax Statement) to employees and IRS Form 1099-NEC (Nonemployee Compensation) to contractors by January 31 each year for the prior tax year. While this doesn’t constitute a payroll tax payment or filing, failure to send out these forms on time could result in financial penalties.
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What Are the Penalties for Unpaid or Late Payroll Taxes?
Failure to File Form 941 and similar forms
The penalty for failing to file Form 941 and other similar forms is as follows:
- A 5 percent penalty of the outstanding amount owed to the IRS
- .5 percent of the outstanding amount owed to the IRS (if you haven’t yet paid payroll taxes) that increases monthly until you pay the balance (up to 1 percent) or the IRS issues a Notice of Intent to Levy
- An additional 5 percent penalty each month the return remains outstanding (capped at five months)
Failure to Provide Information Returns to Employees such as Form W-2 and other payees on Form 1099-MISC
You’ll pay a penalty, but it’s based on your company’s size, the type of error made, and if payment was remitted.
Trust Fund Recovery Penalty (TFRP)
Delinquent payroll taxes trigger this penalty (assuming the owner “willfully” avoided remitting timely payment). The amount is equivalent to the amount of Medicare, Social Security or federal income tax your company owes, plus interest.
How Do Unpaid Payroll Tax Penalties Work?
If you fail to remit payroll taxes, here’s the penalty schedule:
- One to five days past due: 2 percent
- Six to 15 days past due: 5 percent
- Over 16 days past due (and within 10 days of the initial notice from the IRS): 10 percent penalty
- Over 10 days from the initial notice from the IRS or a notice demanding immediate payment: 15 percent
Business/Size of Company
Is your company classified as a small business or a large business?
Delay of Payment
Extensive delays mean more severe financial penalties.
Type of Infraction
The penalty you’ll pay for a mistake or oversight will likely be far lower than if you willfully evade payroll taxes or federal income taxes.
How To Avoid Paying Payroll Taxes Late
Pay In Full When Taxes are Due
Be sure to make timely payments to the IRS.
Accurately Report Any Tax Liability
Confirm the numbers to ensure they’re not overstated or understated.
Submit Valid Checks for Tax Payments
Invalid checks could result in penalties from both the IRS and your financial institution.
File Your Tax Forms on Time
Don’t forget to meet the return filing deadlines.
Contact a Tax Relief Expert
If you’re stressed out about payroll taxes, it’s worthwhile to reach out to a tax relief expert for assistance. The team at Larson Tax Relief provides tailored solutions for companies and individuals with state tax problems looking to save money and time and avoid stress.
With 15 Enrolled Agents on staff, they offer free consultations to business owners and individuals who owe over $25,000 in federal or state income tax. Submit an inquiry using the online form today to speak with a team member that can assess your unique tax situation and communicate recommendations for the best possible outcome.