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Penalties for Failing to File Payroll Tax Returns

If you have employees, you may be required to file Form 941, Employer’s Quarterly Federal Tax Return. If you fail to file this return, you could face several tax penalties.

Failure to File And Failure to Pay

The penalty for a failure to file Form 941 (if required) is 5% of the tax due with the return. This penalty is assessed each month for a maximum of 25% of the tax due.

In addition, you can also be assessed the failure to pay penalty of 0.5% per month. This penalty also has a maximum of 25% of the unpaid tax. You’ll also be charged interest each month on the unpaid balance.

Act quickly if you’ve failed to file a payroll tax return on time to minimize how much you’ll pay in penalties and interest.

Failure to Deposit and Trust Fund Recovery Penalty

Employers are also required to deposit payroll taxes with the IRS based on a set schedule, typically semi-weekly or monthly. You can’t simply wait to pay your payroll taxes when you file your quarterly return or you’ll be hit with the failure to deposit penalty.

The failure to deposit penalty is assessed based on the number of days late your payment is:

  • 2% if your payment is 1 to 5 days late
  • 5% if your deposit is 6 to 15 days late
  • 10% if your deposit is 16 or more days late
  • 15% if your payment is made 10 or more days after receiving a bill from the IRS

You’ll also be charged interest on late deposits. In addition, you or other individuals at your company can be held personally liable for the trust fund recovery penalty (TFRP).

The TFRP is equal to 100% of the unpaid payroll taxes. The penalty is only assessed when there is a willful failure to pay trust fund taxes, which include the federal income, Social Security, and Medicare taxes withheld from employee’s paychecks. These funds are the employee’s money that is being used to pay taxes, and the employer is said to hold this money in trust.

If you have employees, make sure you fully understand the consequences of payroll tax noncompliance and consult a tax attorney to discuss your tax resolution options.

Get help with payroll tax problems by calling The Gartzman Law Firm at 770-939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.