How the IRS Handles Unfiled Federal Payroll TaxesForm 941 payroll taxes are a particularly severe type of back taxes to owe. The IRS works aggressively to ensure businesses are up to date on their payroll taxes. Penalties and interest assessed on late payments can send a small business into a financial spiral. If the tax is neglected long enough, the government can close the business and seize all your property to pay off the debt. The IRS will not allow a business to remain active and continue owing more tax. Not only is your business at risk, you may be held personally liable as well. If the IRS determines that your business cannot pay its past due payroll taxes, they can look to the assets of the business owner and other responsible individuals/entities and assess a Civil Trust Fund Penalty. Filing RequirementsFederal law requires you, as an employer, to withhold taxes from your employees' paychecks. Each time you pay wages, you must withhold, or take out of your employees' paychecks, certain amounts for federal income tax, social security tax, and Medicare tax. Under the withholding system, taxes you withhold from your employees are credited back to them in payment of their tax liabilities. Federal law also requires you to pay any liability for the employer's portion of social security and Medicare taxes. This portion of social security and Medicare taxes is not withheld from employees. Employers are required to use Form 941 to report:- payroll taxes (withheld federal income tax and both employee and employer shares of social security and Medicare taxes) for the quarter;
- current quarter's adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips, and group-term life insurance; and
- prior quarters' adjustments to federal payroll taxes (attach Form 941c).
Filing CompliancePayroll tax returns are filed for each quarter of the year and an annual return is required for Federal Unemployment Tax (Form 940). Federal Tax DepositsEmployers who file form 941 with $2,500 or more due per quarter or form 940 with over $500 in tax due per quarter must make Federal Tax Deposits. Federal Tax Deposits for form 941 are made up of taxes withheld from your employees’ salaries and your half of their FICA, or Social Security and Medicare. Federal Tax Deposits for form 940 are made up monies paid by you for your employees’ unemployment compensation. In the case of both 941 and 940, taxes must be paid as they become due in order to avoid penalty. Federal Tax Deposits have specific dates when they are due based on a "look back" period. It is determined by the amount of payroll tax due and can vary from monthly to quarterly. Most employers fall in the monthly category and are required to make the deposit by the 15th of the following month (i.e. March's FTD is due by April 15th). Employers usually have coupons (Form 8109) that they complete with the amount due, type of tax (941, 940) and quarter they are depositing for. They are usually made at a local bank, but some employers are required to use the EFTPS (Electronic Federal Tax Payment System). Once the IRS requires you to use this system, all FTD must be made through this system or you will incur a penalty. Download IRS Publication 3151 for more specifics on when and how to make deposits. Further ReadingPayroll Taxes: The Highest IRS Collection Priority Civil Trust Fund Penalty Tax Debt Solutions |