Payroll tax penalties shouldn’t be a cost of doing business, but every year thousands of organizations find themselves paying them. Items like incorrect calculations, missed deadlines and misreporting are typically to blame. While employers can avoid costly errors with diligent payroll processing, partnering with a payroll provider may become increasingly beneficial as your payroll needs grow and more complex.

What happens when payroll taxes go unpaid?

Employment tax penalties are fines that employers receive from federal or state agencies when they fail to complete their tax obligations. The most prevalent of these fines is called a failure to deposit penalty, in which the employer does not deposit their owed employment taxes by the due date.

Employers who are found to have intentionally neglected to collect or deposit employment taxes may also be charged a Trust Fund Recovery Penalty (TFRP). The penalization percentage for a TFRP is much steeper than a failure to deposit penalty. Employers could face additional penalties such as criminal charges.

Which payroll taxes should you be paying?

There are various employment taxes that employers are required to withhold and pay based on their business. Below are some of the most common taxes that employers will need to know.

FICA taxes and Form 941

Employers are required to withhold employees’ Social Security and Medicare taxes, also known as FICA taxes, from wages and match up to the Social Security wage base. While tax payment schedules vary based on the size of your payroll, employers commonly pay these taxes monthly or semi-weekly. FICA tax payments are reported quarterly on IRS Form 941, Employer’s Quarterly Federal Tax Return.

Federal and state income taxes

Employers are required to withhold income taxes from their employees’ wages by the IRS, most state governments and some municipalities. Federal income tax payments are generally paid monthly or semi-weekly, like FICA taxes, and reported quarterly on Form 941. Income tax reporting requirements and due dates will vary by state and locality.

Federal unemployment taxes and Form 940

Employers who pay $1,500 or more in wages to employees in any quarter or have one or more employees for at least 20 weeks in a year must generally pay federal unemployment taxes. Federal unemployment tax payments can be made either quarterly or annually depending on how much tax is owed. Businesses must file IRS Form 940, Employer’s Annual Federal Unemployment Tax Return by the end of the year regardless of payment frequency.

State unemployment taxes

Businesses normally must pay state unemployment taxes in any state where they have employees. While state unemployment tax payments are typically due quarterly, the rates and wage bases change depending on location. Some industries and employers with previous incidences of unemployment claims may face higher tax rates as well.

Providing employees with wage and tax reporting forms

Employers can be assessed penalties if they submit inaccurate wage and tax reporting forms or fail to meet distribution deadlines. For instance, employers must provide employees with Form W-2, Wage and Tax Statement and independent contractors with Form 1099-NEC, Nonemployee Compensation by January 31 of the new tax year.