Whenever a business hires its first official employee, payroll taxes must be dealt with. The correct amount must be withheld from their wages, employer portions added, amounts remitted to the appropriate federal, state and local agencies, and returns filed in accordance with applicable regulatory compliance.
But every year, many businesses receive fines or costly penalties from the IRS, due to errors or oversights made when dealing with payroll taxes.
Fortunately, payroll tax penalties are wholly avoidable, and provided you follow a few simple steps and work with a tax accountant in Coral Springs, they are wholly preventable, too.
Let’s look at what happens if federal payroll taxes aren’t paid:
If an employer fails to meet its payroll tax obligations, a combination of interest and fines from the IRS typically ensue, with more serious repercussions should the issue continue to go unresolved.
Here are some common federal payroll tax penalty types:
Failure to File and Failure to Deposit are the top two IRS tax penalties at federal level:
- Failure to File
Should a business miss the payroll tax filing deadline, or fail to file altogether, the penalty begins at 5% of the unpaid tax for every month that the return is late, ranging up to 25%. If a return is late by more than 60 days, employers can expect to pay whichever is less: $519, or 100% of the unpaid tax.
Note that the IRS are within their rights to impose interest on this type of penalty, too, although there is an opportunity for employers to dispute this decision.
- Failure to Deposit
Based upon how late the payroll tax deposit is made, employers can expect to pay 2% of the unpaid deposit (1-5 calendar days), 5% of the unpaid deposit (6-15 calendar days), or 10% of the unpaid deposit if the deposit is more than 15 calendar days late.
However, if the employer received their first penalty notice letter more than 10 calendar days ago, they’ll receive a notice from the IRS for immediate payment. The penalty for missing this demand, is 15% of the unpaid deposit.
Just as with the penalty for Failure to File, interest may be imposed by the IRS on the deposit amount yet to be paid, with employers able to dispute this or ask for forgiveness.
What happens if state payroll taxes aren’t paid?
Types of state taxes and their deadlines vary, but just as with penalties for federal payroll taxes, the most commonly received are for failure to deposit collected amounts, or failure to file in time.
Best practices for avoiding payroll tax penalties:
Compliance and reporting processes must be robust and dependable if payroll tax penalties are to be avoided, and along with hiring a reliable and experienced accounting firm in Coral Springs, records must also be kept meticulously. Additionally, employers should have an understanding of how payroll taxes are calculated (even if their accountant does this for them), and keep themselves up-to-date with changes to payroll tax rate legislature.
Tax deposits and report filings that are automated can also be helpful, and running quarterly payroll audits can identify potential issues before they become a problem, as well as ensure that the latest requirements for federal, state and local tax deadlines are being complied with.
Tax enforcement is a serious concern for local, state and federal agencies, particularly as they fund vital programs such as Medicare, Social Security, and unemployment insurance. While failure to deposit or file on time is a compliance concern for employers, it’s also a major liability.
