Unpaid taxes. It is one of the worst things that a business can do in the United States.
The IRS is in charge of collecting those unpaid taxes. However, there still tends to be around $600 billion per year in unpaid taxes that go uncollected.
This does not mean that a business gets away with it forever. Once the IRS does catch your business, you have to pay a tax penalty.
These penalties can get expensive. Why is an IRS penalty so expensive? What type of penalties are you facing if you do not pay your taxes?
This is your guide.
Types of IRS Penalties
Before we can get into why these tax penalties are so expensive, you need to understand what the tax penalties are. These are two of the most common ones.
Failure to Pay
The failure to pay tax penalty applies to businesses that fail to pay the tax that you said you owed in your files. There is a specific deadline for this and there is even an extension date in some cases.
Failure to pay tends to be the less severe penalty of the two.
The minimum penalty for this tax violation is 0.5% of the taxes that you owe. However, this penalty increases depending on how many months of taxes you owe. The maximum amount that the IRS will charge you in penalties is 25% of what you owe.
Failure to File
Failure to file is treated more seriously by the IRS of these two penalties. This is when you have not only failed to pay the taxes that you owe but also failed to properly file these taxes. It can lead to a situation where the IRS may suspect your business of hiding unpaid taxes.
The minimum penalty reflects the severity here. This one starts at 5%. Like the failure to pay penalty, this goes up depending on how many months of taxes you owe. This penalty also does not exceed 25% of what you owe in taxes.
Something else that you should note about this is that these two penalties will not increase separately if you violate both at the same time. What this means is that if you failed to file and failed to pay, your penalty per month will not exceed 5%. It will also not exceed 25% in combined penalties.
Why Are IRS Penalties So Expensive?
So, why are IRS penalties so expensive? The answer is that these companies are withholding money from programs that need it such as Social Security and Medicare. On top of this, businesses essentially get a free loan from unpaid taxes if they do not pay those taxes and are not caught.
The IRS is the organization that makes sure businesses operate fairly and that programs such as Medicare and Social Security keep getting the funding that they need.
Does your company need help with payroll organization? Message us here to see how we can help.