Delinquent Payroll Taxes Huge IRS Problems All Business Owners Must Know

Skipping payment of your payroll taxes is like poking the lion at the zoo through the bars. Eventually the lion, or in this case the IRS, is going to bite the stick or you. Correct withholding of payroll taxes from employee paychecks is a legal mandate for all employers in the United States. Employees logically count employers to hold the money taken out of their check for payroll taxes and then send it on time to the Internal Revenue Service. The IRS also counts on receiving those funds and it has severe penalties in place for companies that don’t comply with law and send the funds that have been set aside. The bottom line for the IRS when it comes to payroll taxes is if the funds held aside for payroll taxes are delinquent for 1 year or more, they will most likely see it as tax evasion and come after you with criminal charges.

Internal Revenue Service Deadlines for Payroll Tax Deposits

The breakdown for filing IRS Form 941 is as follows: Employers owing $1,000 or less are required to mail IRS Form 941, Employer’s Federal Tax Return each quarter. The envelope containing the return requires a post mark of Apr. 30, July 31, Oct. 31 and Jan. 31, depending on the quarter. Employers who paid payroll taxes of $50,000 or less for the year before are required to file Form 941 each month. Employers who paid more than $50,000 or more for the year before are required to file IRS form 941 for taxes owed twice a month. It is mandated by the IRS taxes owed must be via the IRS’ Electronic Federal Tax Payment System no later than 4 days after the payroll date.

Internal Revenue Service Delinquent Payment Notices

The Lesson for Employers to be Learned About Delinquent Payroll Taxes When payroll taxes are late, if you filed form 941, the first thing to happen is the IRS will send you a bill for the taxes due.  The bill will indicate the taxes due plus penalties and interest.  The IRS will send you an invoice for payroll taxes due if you do not file the quarterly return that was due.  The IRS will begin collection activity if no response or payment is made regarding its 2nd late payment invoice for payroll taxes due. The IRS has the legal authority to seize business assets, inventory, accounts receivable and even business bank accounts to collect past due payroll taxes.

Trust Fund Recovery Civil Penalties

Responsible parties identified by the IRS can be personally charged with the Trust Fund Recovery Penalty for unpaid payroll taxes. Responsible parties are charged with the mandate to payroll tax deposits on time. This is accomplished by collecting the taxes due, holding them in a trust account then paying them directly to the IRS. The Trust Fund Recovery Penalty is severe. It is equal to 100% of the payroll taxes due, plus any penalties and interest. Let’s say there’s a total of $8,000 due including penalties and interest. If IRS charges the Trust Fund Recovery Penalty to a business, all responsible parties will be personally responsible for paying a total amount of $16,000.

Past Due Penalties Assessed as a Crime

Payroll taxes that go unpaid can be assessed by the IRS as tax evasion. If this turns out to be the case, a responsible person may have to pay up to a maximum fine of $500,000, go to prison for 5 years and be required to pay the taxes, interest and penalties still due, including the Trust Fund Recovery Penalty.

The Lessons for Employers to be Learned About Delinquent Payroll Taxes

Payroll taxes must be paid on time. Responsible parties with the duty to pay payroll taxes face severe penalties and potentially even criminal consequences for unpaid payroll taxes.