When a business runs short on cash, it can be tempting to stop paying payroll taxes so you can use that money to operate the business. This is a bad idea because of the steep penalties you’ll face for failing to remit your payroll tax deposits on time.
You’re almost always better off getting the money from somewhere else because the tax penalties cost more than getting a loan. If you do fail to pay payroll taxes, you’ll have to deal with the following consequences.
Failure to Deposit Penalty
The failure to deposit penalty is fairly severe, especially when compared to other tax penalties. For example, the late-payment penalty for individual taxpayers is only 0.5% of the unpaid taxes per month.
The failure to deposit penalty starts at 2% of the unpaid payroll taxes. That penalty applies if your tax deposits are even a single date late.
The penalty increases to 5% or 10% if your deposits are six or 16 days late, respectively. If you still haven’t paid more than ten days after receiving an IRS notice, the penalty amount becomes 15%.
In some cases, you may be able to request penalty abatement. However, the IRS will generally be less lenient if you continue to miss payments.
Trust Fund Recovery Penalty
The failure to deposit penalty applies to all late payments. The trust fund recovery penalty (TFRP) only applies when the IRS determines you have willfully failed to collect or remit payroll taxes.
The TFRP is assessed against responsible individuals, rather than the company they work for. The TFRP is equal to 100% of the unpaid payroll taxes.
Criminal tax penalties can also be assessed, which can include more fines and possibly jail time.
Tax Liens and Levies
If you have a significant amount of unpaid payroll taxes, the IRS may put a lien on your business. This can make it difficult to get credit and could effectively shut down your business.
The IRS also has the ability to levy many types of business assets. If you want to keep your business running, you’ll need to cooperate and come up with a plan for resolving your tax problems.
Contact a tax attorney to minimize the consequences of late or unpaid payroll taxes.
Out tax attorneys handle audit defense, unpaid payroll taxes, and trust fund recovery penalty cases. Call The Gartzman Law Firm at (770) 939-7710 now to schedule your consultation.