As an employer, you must pay employment taxes if you have employees. Fail to pay and the IRS will rain all over your parade.
If you have employees, you absolutely must deduct and withhold various taxes from the paychecks of your employees. Since you are deducting money from the employee’s paycheck, you are handling and holding their funds “in trust” for the U.S. Government. This fact is very important to the IRS and it places great emphasis on any failure to deposit employment taxes.
If you fail to pay employment taxes, you will be subject to a 100 percent penalty. Yes, 100 percent. Known as the “Trust Fund Recovery Penalty” (TFRP), the penalty is assessed against the person responsible for paying the taxes, not the entity. The person can be the owner, corporate officer or other “responsible person.” In short, a business entity is not going to protect you from the wrath of the IRS.
Cash flow crunches are an inevitable event for practically every business. So, what happens if you make a late payment for employment taxes. Unless you can show a reasonable reason for the delay, the IRS is going to penalize you.
Late payment penalties range in amount depending on the delay. If the delay is less than six days, the penalty is two percent. Delay for six to 15 days and you are looking at five percent. More than 16 days in delay is going to push the penalty to 10 percent. If you delay this long, the IRS will be peppering you with penalty notices telling you where you stand, and, the penalty increases to 15% if paid more than 10 days after the first IRS bill! (https://www.irs.gov/pub/irs-pdf/p3151a.pdf page 21)
Whatever you do, make sure you deposit employment taxes with the IRS in a timely fashion. Take a moment to think about the worst thing you have ever heard done by the IRS. If you fail to pay employment taxes, the actions taken by the IRS will be ten times worse and you will be the one telling horror stories.
Have a Federal Tax issue you are dealing with? The Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic can consult with you to provide advice regarding your IRS tax issues, and/or potentially act on your behalf for FREE if you qualify for assistance (come to a clinic intake session)!
Jim Floyd is the Staff Enrolled Agent at the Neighborhood Christian Legal Clinic – Low Income Taxpayer Clinic.
As an Enrolled Agent, Jim is a federally-licensed tax practitioner with unlimited rights to represent clients before the Internal Revenue Service. This means he is unrestricted as to which taxpayers he can represent, what types of tax matters he can handle, and which IRS offices he can represent clients before. Enrolled agent status is the highest credential the IRS awards.
To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits, and adhere to a stringent code of ethics.