I’m often asked by business owners what will happen if they are late paying payroll taxes to the Internal Revenue Service (IRS). Employers should be collecting payroll taxes for every employee (with the exception of independent contractors). They are typically calculated as a percentage of the salaries that employers pay their staff, and they generally come from employee’s wages. As you can imagine, the IRS is not fond of businesses and corporations that are delinquent in paying payroll taxes. Let’s look at the penalties for those late payments.
Payroll taxes are required to be filed quarterly or monthly, depending on the size of your company’s payroll. If your payroll tax for the quarter is $1,000 or less, those taxes are due to the IRS no later than April 15, July 31, October 31 and January 31. If your company’s payroll tax is $50,000 or less, taxes must be sent to the IRS monthly.
If you are late paying the IRS payroll taxes, you will first receive a bill for the amount owed, which includes the taxes due plus penalties and interest. If you do not respond to the notice or pay the amount due, the IRS typically sends one additional bill before taking more drastic steps to collect.
If your company does not file payroll taxes, the IRS can assess the failure-to-file penalty, which is five percent for each month of unpaid taxes, up to 25 percent. If a business still fails to pay payroll taxes, the IRS can garnish your bank account. They can put a levy on account receivables. They can attach a lien to your property and/or business equipment. Additionally, penalties and interest will continue to accrue.
If you must file payroll taxes late, the amounts in penalties increase incrementally for periods of time after the deadline. For example, if your payroll tax deposit is up to five days late, the IRS will charge an additional two percent of the required payment. If payroll tax is deposited between six and 15 days, a five percent penalty fee will occur. If it’s after 16 days, the penalty jumps to ten percent. Keep in mind that fee is just the penalty; interest is also owed on the amount.
The bottom line is it’s best to pay your payroll taxes on time to avoid late payment fees and penalties. If, however, you are unable to do that, do not try to tackle the IRS on your own. Always consult with a tax attorney or experienced tax professional in order to minimize your penalties and interest.
Allison Soares is a partner and tax attorney at Vanst Law. Before starting her own practice, Soares was a partner at a tax law firm where she honed her skills handling a wide variety of tax and employment-related cases. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.