Are you a small business owner who owes back payroll taxes because you have not withheld taxes from your employees' paychecks? Do you simply need payroll tax help? Even if the IRS does not immediately contact you regarding a failure to properly pay taxes, you can be sure that they will notice you have not remitted payroll tax payments and you may end up facing serious consequences.
Every business must remit payroll taxes to the IRS quarterly, after withholding the taxes from every paycheck. Tax payments are due in March, June, September, and December. As a business owner, you are responsible for determining the appropriate amounts of federal income tax, Medicare, and social security tax to withhold from employee paychecks.
The federal government assesses payroll taxes and goes after back payroll taxes, enforcing compliance through the IRS. Payroll tax is the money an employer must withhold from employee wages and includes contributions to Social Security, Medicare, and unemployment insurance.
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If you own a business and have W-2 employees, you have some tax responsibilities related to your employees and your business. You must:
Depending on the size of your business, you may be required to remit payroll taxes directly after withholding them. With a little planning, you can avoid penalties for non-payment of payroll taxes.
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If you don’t pay your personal income tax, you can be charged with tax evasion, failure to file, and failure to pay. You wind up paying penalties and interest based on your tax debt balance.
If you don’t withhold or remit payroll taxes, you can be hit with all kinds of penalties for back payroll taxes such as failure to file, failure to pay, and interest as well, but you may also receive harsher punishment. You may owe higher penalties and substantial amounts of money on your back payroll taxes, for which the IRS can take your personal property, bank accounts, and other assets to pay.
FYI, you cannot discharge payroll tax penalties with bankruptcy. Owners, partners, and corporate officers are all held personally liable for unpaid payroll taxes, including consequences such as:
If you have business partners or corporate officers, they face the same penalties.
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If you're facing issues with back payroll taxes, there are several things you can do to resolve your unpaid payroll taxes before things become really bad.
For starters, you should definitely get current on all your past tax returns and make up any current payroll tax deposits. File Form 433-B to allow you to provide details about your business income, assets, expenses, and debts. Then provide documentation including bank statements, profit and loss statements, monthly bills, and accounts receivable with aging reports.
After you do all that, request in writing an installment agreement with the IRS to allow you to pay down the rest of your payroll tax debt, penalties, and interest. If you cannot pay the total amount, even over time, you can apply for an offer in compromise or short-term deferral of your payroll tax debt.
Be sure to follow all IRS deadlines, or any payment plans or agreements may be revoked.
>>Click Here to Learn How to Resolve Unpaid Payroll Taxes
As with failure to pay individual taxes, failure to pay payroll taxes will result in penalties, interest on back taxes, and having to deal with IRS collections. Failing to pay payroll taxes on a quarterly basis can mean large penalties, even if you are withholding the taxes appropriately and were planning to make an annual payment. Penalties quickly add up, making it more difficult to catch up with back tax payments.
Whether you have or have not been contacted by the IRS, don't wait to bring your taxes up to date. Schedule a free consultation with Top Tax Defenders' experienced team today.
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Payroll taxes are the taxes an employer must withhold from employee wages and remit to the IRS on their behalf. They include federal income tax, Social Security, Medicare, and unemployment insurance contributions. As an employer, you are responsible for withholding the correct amounts from every paycheck and depositing them with the IRS on a quarterly basis.
Payroll taxes must be remitted to the IRS quarterly. Payment deadlines fall in March, June, September, and December. Depending on the size of your payroll, you may be required to deposit taxes more frequently. Some employers must deposit weekly or semi-weekly. Failing to meet deposit deadlines triggers penalties even if the taxes were correctly withheld.
As an employer with W-2 employees, you must withhold the correct federal and state income tax from each paycheck, deduct FICA taxes covering Social Security and Medicare, remit federal and state unemployment taxes, and file quarterly tax statements with the IRS. Failure to meet any of these obligations can result in penalties, interest, and personal liability for business owners.
Failing to remit payroll taxes triggers significant consequences. The IRS can assess penalties up to 33% of the amount owed, charge interest on the unpaid balance, seize business and personal assets, and pursue criminal charges. Unlike most other tax debts, payroll tax penalties cannot be discharged through bankruptcy. Business owners, partners, and corporate officers are all held personally liable.
Yes. The IRS holds business owners, partners, and corporate officers personally liable for unpaid payroll taxes through the Trust Fund Recovery Penalty. This means the IRS can pursue your personal assets, including bank accounts, real estate, and other property, to recover the debt. Personal liability applies even if the business closes or files for bankruptcy.
The Trust Fund Recovery Penalty is an IRS enforcement tool that makes individual business owners, officers, and partners personally responsible for unpaid payroll taxes. It applies to the portion of payroll taxes that were withheld from employees but never remitted to the IRS. These are funds the IRS considers to be held "in trust" on behalf of the government. The penalty equals 100% of the unpaid trust fund taxes.
Both result in penalties, interest, and IRS collection action. However, payroll tax violations carry harsher consequences. Unlike personal tax debt, payroll tax penalties cannot be eliminated through bankruptcy. Personal liability extends to all responsible parties in a business, not just the primary owner. The IRS also treats payroll tax non-compliance as a higher enforcement priority than most personal tax delinquencies.
Start by getting current on all unfiled returns and making up any missed payroll tax deposits. File Form 433-B to provide the IRS with a complete picture of your business finances. Then request an installment agreement in writing to pay down the remaining balance over time. If full repayment is not feasible, you may be eligible for an Offer in Compromise or a short-term deferral.
Yes. You can request a formal installment agreement with the IRS to pay down your payroll tax debt, penalties, and interest over time. To qualify, you must be current on all tax filings and ongoing payroll deposits. Missing payments or falling behind on future deposits can void the agreement, so staying compliant throughout the repayment period is essential.
No. Payroll tax penalties and trust fund taxes are not dischargeable in bankruptcy. This is one of the key distinctions between payroll tax debt and other business liabilities. Bankruptcy will not protect you or your business from IRS collection of unpaid payroll taxes, and personal liability for responsible parties remains intact regardless of how the business is restructured or dissolved.
The IRS charges a tiered penalty for late payroll tax deposits: 2% for deposits one to five days late, 5% for six to fifteen days late, 10% for more than fifteen days late, and 15% if the amount remains unpaid more than ten days after the first IRS notice. Interest accrues on top of penalties. These costs compound quickly, making early resolution significantly less expensive than waiting.
Strongly recommended. Payroll tax issues involve personal liability, strict deadlines, and IRS enforcement that moves quickly from notices to asset seizure. A tax professional can negotiate an installment agreement, evaluate your eligibility for an Offer in Compromise, challenge the Trust Fund Recovery Penalty if it was improperly assessed, and protect your personal assets throughout the resolution process.
