Sometimes a business will fall behind on paying their payroll taxes to the IRS, the State Department of Revenue or both. This can happen due to software issues (i.e. believing things are being filed when they are not) or some other reason. However, a more common reason is when business owners experience tight cash flow periods and decide to stop paying their payroll taxes.
If you are reading this post and find yourself in the position of owing back payroll taxes, we encourage you to heed this advice:
Read this post in it’s entirety, and IMMEDIATELY do something productive to deal with your matter. Don’t schedule time to work on it later; do it NOW. Our point is that in order to successfully solve your problem, you MUST confront it. So, make a phone call to the state, put funds aside for a payment toward your unpaid balance, complete one of the missing returns, and put it in an envelope to mail with a stamp on it, etc. Just DO something, right now.
Consequences when you don’t file or pay your payroll taxes
Here are some things you can expect to happen when you don’t file or pay:
- Penalties – If the payroll tax return is filed late, the IRS will fine you a percentage of the balance of the return once it is eventually filed. Once the return(s) is filed, if you haven’t paid the associated taxes, the IRS will impose a penalty for not paying within the time frame listed on the notices they sent you. This post on how to deposit payroll taxes will outline how some of the penalties are calculated.
- Interest – The IRS will charge the business interest on all unpaid balances and unpaid penalties until they are paid in full.
- Tax lien – If you owe enough, the IRS will eventually file a tax lien to protect the US Government’s interest. This basically means that the IRS gets first dibs on your assets if you try and sell the business or file bankruptcy. This is done as a procedural matter, even if you get your act together and set up a payment plan.
- Tax levy – If the business is seriously behind and has been avoiding the IRS, they could a random day of the week, take a look at your bank account and seize what you owe them. This is one reason why avoiding the problem is NOT a good idea when it comes to payroll tax problems.
- State issues – In addition to what the IRS can do, your state can do that and more. Because LLCs and corporations are regulated at the state level, the state has a few more weapons in its arsenal. They can dissolve your LLC or corporation, deny your operating licenses, and in extreme cases, show up at your place of business and physically shut it down.
How to fix the problem
Here are the steps that one will want to take to address the problem once and for all:
- Don’t Ignore It – The IRS taxes payroll tax issues VERY seriously. Why? Because the taxes that you are supposed to send to them are held in “trust” for your employees. What we mean is that your employees “trusted” you do send them to the IRS. So when you don’t, the IRS gets really mad and will come after you harder/faster than if it was just an income tax matter. So if you want your life to stay headache free, deal with this issue now!
- File any unfiled returns and make current deposits – File all unfiled returns with the IRS and your state tax authorities ASAP. Also make sure that you are making your current deposits on time. It goes a long way when you eventually talk to someone at the IRS and they can see that you are paid up on your current returns and are just dealing with older returns/balances.
- Follow the IRS Deadlines – When the IRS gives you deadlines for completing returns, submitting documentation, making payments, and other matters, it is critical that you do not ignore these dates. Failing to comply with the deadlines could put your business in jeopardy of being shuttered and you being heavily fined. To protect valuables like company equipment or accounts receivable, you should abide by the deadlines the IRS gives you.
- Be prepared to complete IRS Form 433-B – IRS Form 433-B is used to obtain current financial information necessary for determining how a business can satisfy an outstanding tax liability. With that said, you should familiarize yourself with the form as the IRS will probably ask for it once you start to correspond with them.
- Set up an installment agreement – Once the Form 433-B is completed, it will indicate how much money the business has left to pay towards the taxes it owes. At that point it’s just a matter of reaching out to the IRS (call or write them) and setting up the payment plan. Now we’re sure that some of you will ask “but what about applying for an offer in compromise?” Well, just know that if your business is still in operation, an OIC will more than likely NOT happen (the IRS doesn’t like to cut “forgiveness” deals with operating businesses).
Do You Have Payroll Tax Issues?
Have you failed to file payroll tax returns, make payroll tax deposits or received an IRS notice that you don’t know how (or want) to deal with? Give us a call at 844-829-3788 NOW to put us to work for you. We can help you resolve your payroll tax matters so you can get back to running your business.