When you have employees, payroll taxes are a big liability for you to handle – both alerting, collecting and reporting, as well as remitting these taxes. And if you just forget – or just decide not to – follow through on your responsibility, your small business can be penalized for failing to pay payroll taxes.

But if, for whatever reason, you miss the deadline for making your deposit, well, that you are not paying those payroll taxes is a big, huge deal to the IRS (as well as to other tax agencies).

Failing to meet your payroll tax deadline is just one of the errors you’d like to avoid making.

Key points of your payroll tax responsibilities

Tax must be taken out of your employees’ payable wages and taxes must be paid. Here’s a look at some of the employment taxes you may have to file:

• Income tax on federal, state, local
• Social Security and Medicare taxes (commonly known as FICA tax)
• Unemployment federal and state tax

Here’s what to do instead: Do not pay withholding, federal, state and local income taxes, social security taxes and Medicare taxes or the employer portion of these taxes and any payment toward an employee’s paid leave where required in the FFCRA.

You also need to pay into Social Security and Medicare, unemployment and some state-specific taxes.

Taxes for deposits; withholding; deposit. Deposit payroll taxes according to your paying schedule.

Federal income, Social Security and Medicare taxes can be deposited on a less frequent basis – monthly or semiweekly (or annually in some cases). Schedule to deposit is based on a 4 quarter IRS look-back periods.

Pay the federal unemployment tax quarterly. Your state will inform you when your state unemployment tax and other state-only taxes are due.

And remember – payroll taxes also have to be reported to the IRS and others, as well.

Reasons for Employers Not Paying Payroll Taxes

Think of it this way: You withhold the payroll tax out of an employee’s wages.

You remove the money from your business’s other funds. But you’re a busy business owner with a million things to do. You completely space out on your due date for tax deposits, and your payroll taxes go unpaid.

Or, this scenario may sound familiar: You’ve been setting aside money for payroll taxes. But because you have yet to pay your deposit, you are borrowing your payroll tax money during periods of negative cash flow. The day comes to make the deposit of payroll tax, and you just don’t have enough to cover it.

Business owners like Helene have all kinds of other justifications for failing to pay payroll taxes. An example is a natural disaster that makes it impossible for you to pay your taxes on time. Or perhaps your tax due-dates will be pushed.

Penalty for Non-Payment of Payroll Tax

The IRS collects from about 70% of all annual revenue in payroll taxes. It comes largely from underreported and unpaid employment taxes and accounts for about $72 billion of the federal tax gap. That’s why there are fines in the event your business fails to submit payroll taxes.

When you neglect to pay payroll taxes for your business, you receive a bill from the IRS, and probably a penalty. If employers avoid compliance with employment tax laws, they are subject to both civil and criminal penalties, according to the IRS.

So, what is the consequence if you don’t pay payroll taxes on time? Here’s what you’ll be charged by the IRS, and so going to debt for.

How much you owe

How late a late payment penalty late is

Here’s the penalty for not paying payroll taxes, according to the IRS, depending on how late you are:

• Days Late >| Penalty
• 1 – 5 days 2%
• 6 – 15 days 5%
• 16+ days 10%
• +10 days after original IRS letter 15%

For instance, let’s say you owe the IRS $2,500 in payroll taxes.

You are 16 days late. If it did slip into your tax return, the I.R.S. would hit you with a penalty and charge you another $250, and your entire bill would be $2,750. Remember, this does not include any state penalties you may also owe.

When you fail to deposit payroll taxes on time, you have to deal with penalties, of course. You also face interest rates. This totals, as the IRS points out, 3% – 6% interest you owe.

Failure to establish and maintain a payment plan may result in the IRS filing a tax lien or issuing a tax levy on your property in order to satisfy the tax debt.

You may have to pay an exorbitant fine, spend time behind bars or, in the worst cases, both, if the I.R.S. thinks you’ve been purposefully playing the avoidance game.

Also, don’t forget, you’ll be hit with additional penalties if you file your reports late as well.

Penalty Exemptions

Ever, the I.R.S. will waive a penalty … if you have a good enough reason. If you receive an IRS notice, you will need to describe why you believe you had a reasonable cause for failing to pay.

For example, if you file an employment tax return timely but fail to deposit on time under a qualified new deposit schedule, the IRS may waive penalties for that period.

How to avoid paying employers payroll tax penalty

If you’re most entrepreneurs, you have no desire to screw around with the penalty for failing to address payroll taxes.

Here are some pointers for staying on top of your payroll tax responsibilities.

Withhold, Contribute, and Set Aside Taxes

Every employee’s wages should have taxes taken out of them when you run payroll. But, you also have to be chipping in all the time, too.

What happens if you do not save for your employer tax liability and only set it aside by your tax deposit deadline? Do you have the cash on hand to pay up in a lump sum?

Set up a system to remind you to take out and deposit payroll taxes when you run payroll. If you do your payroll by hand, you might have a payroll software program that allows you to set reminders.

Please Don’t Borrow From Your Payroll Tax Fund

If cash is running short for your business, it can be equally tempting to run off and raid your payroll tax die. But you are not allowed to borrow from the fund. Otherwise, you could end up trapped in the borrowed funds.

Maintaining a separate payroll account for your collected and contributed taxes This will help ensure you don’t spend your payroll taxes to cover other business expenses.

This also helps you build up a cash reserve for your business. There’s also little consolation in the knowledge that, even if Congress finally does get its act together and pass a relief bill that extends these loans payments for another six months, because at my age those payroll tax dollars that funded those retirement accounts simply no longer exist – unless I so choose to use them for payroll.

Look Into Full-Service Payroll Software

Missing your payroll taxes by the deadline is something that can occur to anyone who is a business owner – you’ve got a million freaking things on your plate that you have to be the shepherd over. Don’t take a chance, consider full-service payroll instead.

A full-service payroll service calculates and withholds payroll taxes for you. Last but not least, the provider remits the taxes to the relevant tax authorities for you.

Seeking relief from penalties for failure to pay payroll taxes? You need a reliable system that takes the heavy lifting of your job off your shoulders.

The Payroll Company handles the payroll tax deposit as well as preparing the payroll tax returns and is responsible for remitting your payroll tax liability (so you don’t have to).