Eric Sheldon CPA, PC

Keep Your Payroll on Track

Avoid the IRS from breathing down your neck.

 

Did you know if you miss employment tax deposits the IRS deploys a Failure to Deposit Penalty? The amount you pay is a percentage of what you did not pay on time. It can range from 2% – 15% and is based on the number of days the payment is late. Then, they charge interest!

 

According to the IRS, “Employer-paid taxes include federal income tax, Social Security and Medicare taxes and Federal Unemployment Tax. Employers must send employment tax deposits to the IRS on a monthly or semi-weekly schedule.”

 

Avoid a Penalty

The easiest way to avoid a penalty is to schedule your payments. Prior to each calendar year, you must determine which deposit schedule you are required to use with Publication 15 (Forms 941, 944 and 945).

 

FUTA Tax (Form 940) deposits are also required for the quarter within which the tax due exceeds $500. The tax must be deposited by the end of the month following the end of the quarter.

 

You must also use electronic funds transfer (EFTPS) to make all federal tax deposits. Also, deposits not made my electronic funds transfer are subject to a 10% penalty rate.

 

Trust Fund Recovery Penalty

If the IRS determines you willfully failed to remit payroll taxes, you can be held personally liable for the more severe Trust Fund Recovery Penalty. Willfully, in this case, means you have chosen to pay other business expenses rather than the withholding taxes.

 

Who might be liable for this penalty?

The IRS states, “A responsible person for this purpose can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. A trustee or agent with authority over the funds of the business can also be held responsible for the penalty.”

 

How to Pay a Penalty

If you’ve acted in good faith and can show reasonable cause for why your tax obligations were not met, you may be able to reduce or remove some penalties. View the IRS’s website for:

  • Types of penalties;
  • How to appeal a penalty decision;
  • How to request penalty relief, and;

 

If you want to tackle payroll taxes on your own, ADP offers advice on ways to minimize expensive. We also recommend working with an experienced payroll provider and tax professional to help you avoid these penalties.

 

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About the Author

Eric Sheldon

Eric Sheldon

Eric Sheldon is a certified public accountant with more than 25 years of experience in a wide variety of industries. He's the owner/operator of Eric Sheldon CPA, PC, an accounting firm that specializes in providing tax strategy and preparation, accounting, and bookkeeping services to individuals and small business owners.

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