Immense IRS Issues Connected with Delinquent Payroll Taxes – Part Two

Messing with payroll taxes is like prodding a lion through the bars of its cage. You’ll eventually get bitten.

The IRS takes unpaid payroll taxes very seriously. There are severe penalties for businesses that fail to pay. Individuals can even face criminal charges. Don’t poke the payroll tax lion.

Payroll Tax Compliance is Mandatory

Withholding taxes from employee checks and paying them over to the government is required by law. Employees rely on their employer to handle these taxes properly. The IRS also expects to receive payroll taxes that have been withheld.

If payroll taxes are delinquent for a year or more, the IRS may pursue criminal tax evasion charges.

The Trust Fund Recovery Penalty

The IRS can hold “responsible persons” personally liable for unpaid payroll taxes. Their role makes them responsible for making timely deposits.

This “Trust Fund Recovery Penalty” equals 100% of the late payroll taxes plus interest and penalties. A $10,000 tax bill can quickly become a $20,000 personal liability.

Payroll Tax Evasion is a Crime

More than a civil offense, deliberately not paying payroll taxes can be prosecuted as tax evasion. Conviction can bring:

• Up to 5 years in prison
• Fines up to $250,000
• Payment of all tax, penalties and interest

Lessons About Payroll Tax Compliance

Key takeaways on payroll tax compliance:

• Payroll tax deposits must be made on time
• Late payments bring stiff penalties
• Unpaid taxes can lead to criminal charges
• Individuals as well as businesses are at risk

Setting Aside Taxes Withheld

Payroll taxes withheld from employee checks must be kept in a separate trust account until paid to the IRS. These include:

• Federal income tax
• Social Security tax
• Medicare tax

Commingling these “trust fund” taxes with general funds is prohibited.

Payroll Tax Deposit Schedules

Most businesses must make payroll tax deposits monthly or semi-weekly based on their level of tax liability. Deposit schedules are set by the IRS and must be followed meticulously. Even a 1-day delay can generate penalties.

Consequences for Late Deposits

Late payroll tax deposits lead to automatic penalties:

• 2% if 1-5 days late
• 5% if 6-15 days late
• 10% if 16+ days late
• 15% if still unpaid 10 days after IRS notice

Reasonable cause won’t avoid these penalties.