Penalties for Late IRS Payroll Tax Payments: A Guide

In the US, there are 32.5 million small businesses that help to create 1.5 million jobs annually.

Each of these businesses is responsible for making payments for their employee payroll taxes. And while those numbers are impressively large, don’t be fooled that the IRS doesn’t keep track of every single one of the businesses and what they should be paying.

If those millions of businesses don’t stay tax compliant, they should be prepared for the late tax payment penalties, and they are hefty.

If you’re a small business owner or manager, you need to ensure you get your payroll taxes submitted on time or run the risk of penalties.

Wondering what those penalties will cost if you don’t pay on time? Read on to learn more.

What Are Unpaid Payroll Tax Penalties?

A business with employees is required to collect certain taxes from the employee wages before the employee collects their pay.

These are called trust fund taxes because they are collected from the employee and held in trust by the business. Then the business needs to report and pay those taxes to the IRS.

The employer is responsible for withholding taxes for:

  • Income tax
  • Social Security tax
  • Medicare tax

The business also must match the Social Security and Medicare taxes. Part of the small business payroll requires the business to report and make payroll tax payments to the IRS.

If a business fails to make these payroll tax payments according to the IRS schedule, they face tax penalties.

Tax Penalties

The IRS calls these penalties failure to deposit penalties. This means the business has not made the appropriate tax deposits to the IRS.

The IRS will issue penalties based on the circumstances of the late payment. They will consider if the late payment was willfully done, how late it is, and the overdue amount.

Penalties for not paying payroll taxes might include:

  • Money fines and penalties
  • Interest on back taxes
  • Civil and criminal sanctions
  • Liens against property
  • Jail sentences

Of course, the penalties will start as financial penalties. They will issue the fines based on the overdue amount and the time they wait for the money. Then penalties quickly escalate when not paid.

Cost of Unpaid Taxes

The IRS has set tiers for unpaid tax penalties. The penalties include:

  • Payments 1 to 5 days late pay 2% of the unpaid deposit amount in penalties
  • Payments 6 to 15 days late pay 5% of the unpaid deposit amount in penalties
  • Payments 15 days late, or ones that get paid within 10 days of the first IRS notice, have 10% penalties for the unpaid deposit amount in penalties
  • Payments made more than 10 days after the IRS notice face 15% penalties of the unpaid deposit amount in penalties

If the business isn’t making the deposit electronically to the IRS, they also pay an additional penalty.

Avoid Late Tax Payment Penalties

With such steep penalties issued by the IRS, a business needs to do everything possible to avoid late tax payments.

A business should pay attention to IRS announcements. They are diligent with communication. A small business can also have a separate account for tax payments to ensure they have the money needed when it’s due.

If you’re struggling to manage all the payroll and tax requirements, you should consider using a payroll service to help keep you in compliance.

Payroll Taxes and Tax Compliance

Getting hit with a late tax payment penalty can be painful and expensive for a small business, especially one that is working on a tight budget to stay afloat.

Avoid getting into trouble with the IRS and consider getting assistance with your payroll. Free up your time and keep your payroll running smoothly. Contact us today so we can help you manage your payroll needs.

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Christina Hageny

President - Valor Payroll Solutions

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Christina Hageny

President - Valor Payroll Solutions

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