The IRS considers unpaid payroll taxes a high offence, higher than unpaid income taxes. It will make every effort to collect what is owed, even if it means taking legal actions against the business AND its owners.
Neglecting your responsibility as an employer will result in serious consequences.
Realizing this, we know that tax problems happen to the best of business owners. Many times, for reasons outside of your control. Unfortunately, the IRS has little sympathy and expects the obligation paid on time, every time.
What to do?
File the Return! An unfiled payroll tax return quickly incurs penalties, up to 25% after 5 months. Do not ignore filing. Save 25% by getting the return filed.
Pay what you can. The IRS also imposes a failure-to-pay penalty, up to 15%. Making a partial deposit will go a long way to reducing this penalty.
Stop Digging the Hole! When a payroll tax deposit is missed it is important to start making current deposits as soon as you can. First focus on making the current deposits before catching up on missed payments.
Falling behind on payroll taxes is a major cause of business failure. When a business starts using employee withholdings to keep the lights on, it is a sign of serious problems. The IRS will shut the business down.
Payroll taxes are unique in that the unpaid “Trust” portion of the taxes will be quickly assessed on the responsible parties through the Trust Fund Recovery Penalty (TFRP). And the TFRP does not go away if the business does. It will be laid on each of the responsible parties, as individuals.
What is the TFRP? It is the amount of unpaid taxes that were withheld from the employee’s paychecks. Note: The TFRP cannot be discharged in bankruptcy.
If you are having trouble making your Payroll Tax Deposits, be sure to act immediately and minimize the damage.
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