Payroll Tax Matters

When you run a business and employ workers, you are responsible for handling payroll taxes. You need to deduct your employees’ taxes from their salaries and pay them to the IRS in their name. At the same time, there are proportionate amount of taxes you need to pay as a business for each of your employees. Any delay or failure to pay due taxes will introduce interest and penalties which will grow over time. The IRS is more strict with companies than it is with individuals. It may take time before the agency knocks on the door. But eventually, they will and the business will have to face a heavy financial burden.


Payroll tax payments are monitored strictly and there is little tolerance for offenders

Indeed, while some individuals may get away with small tax misdemeanors, businesses almost never get such a chance. The IRS chases payroll taxes much more aggressively.

Companies are required to collect the appropriate amount of taxes from their employees and hold them in a Trust Fund.

These include:

  • Federal and state income taxes
  • Social Security
  • Medicare
  • Unemployment taxes
  • Local taxes (city, county tax; disability tax, etc)
  • Employer’s share of all appropriate workers’ taxes

Businesses need to make quarterly payments to the IRS and submit a number of reports and forms throughout the year to account payroll taxes. Procedures for businesses are more complex and they are required to provide a lot more information than individuals.

At the same time, the IRS is more strict and rarely provides the benefit of doubt. When a company doesn’t submit the proper financial statements during the expected window, the IRS will initiate a series of letters and notices. The business will be given the chance to comply voluntarily.

Even if you’re behind on your taxes, we strongly advise to heed the warnings of the IRS and make at least partial payments. This will prove to the agency that you don’t intend to avoid your taxes, just experience financial problems. The interest and fines for delayed payments are considerably smaller than those that follow failure to pay.


Ignoring the IRS will result in a financial penalty and interest over the owed taxes. Due taxes are owed forever and interest runs indefinitely. So, it’s easy for small payroll tax problems to snowball and outgrow the original tax that was owed.

Payroll tax penalties include:

  • Failure to prepare correct W-2 forms and file them by the end of January – fine of $50 for each missing or incorrect document.
  • Failure to submit appropriate tax forms, like Form 941 – fine of up to 15% for delays upwards of 16 days.
  • Failure to pay payroll taxes when due (Trust Fund Recovery Penalty) – fine of 100% on top of all unpaid taxes.

Eventually, the IRS will stop sending letters and proceed to impose liens and levies on the company’s assets. Liens can prevent you from accessing financial services. Levies will forcibly collect your financial assets, business equipment, and company fleet in order to cover your debt.

Any hardship that caused the business to neglect payroll taxes will grow even worse. Forced collections can disrupt your day to day operations, cause cash flow problems and even prevent you from offering your products or services. If your company has evaded paying payroll taxes for too long or has committed crimes, the IRS can put you out of business.

At this stage, you need to negotiate with the IRS and explore solutions that allow you to make payments and keep enough capital to remain operational.

We recommend consulting a licensed tax attorney before speaking to the IRS. A tax attorney will evaluate your case and hopefully propose a solution to some of the charges.

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