Not Depositing Employment Taxes? There is a Penalty for That

payroll taxesEmployers in the U.S. are required to collect employment taxes and pay them over to the Internal Revenue Service (IRS). Not only that but responsible parties are expected to do so in a timely and correct manner. Not surprisingly, if there is an error along the way in the amount, timing, or method of depositing payroll taxes, you will likely be charged a penalty.


As we have discussed before, the IRS takes payroll taxes seriously and puts a priority on tracking down payroll tax fraud. Tax evasion through failure to deposit payroll taxes is common. Business owners or employees too often collect and withhold employment taxes to feather their own bottom line with the funds—rather than pay over the taxes. In addition to robust prosecution of payroll tax offenders, the IRS also uses the Trust Fund Recovery Penalty (TRFP) to collect missing monies from the personal wealth and assets of those responsible for paying the employment taxes in the first place.


In addition to the TFRP, the IRS will enforce the Failure to Deposit (FTD) penalty. The penalty represents a percentage of the employment taxes that are not deposited in the right way, in the right amount, and on time. Whether the reason is embezzlement or ignorance of the correct means to pay over the employment taxes—the outcome is costly.


Basically, the IRS expects you to deposit Medicare taxes, federal income taxes, and social security taxes monthly or semi-weekly. Deposits are to be accompanied by the appropriate, accurately completed forms. The deposit and the forms are transmitted electronically to the IRS.


The Failure to Deposit Penalty

If your payroll taxes are incorrect or untimely, the IRS will send you a notice of the FTD penalty.  The penalty is determined by the number of days the correct deposit is late, beginning with the original date the deposit is due.


For example, if your deposit is late by one to five calendar days, your FTD penalty will be two percent of the unpaid deposit. If it is more than 15 calendar days late, that will cost you ten percent of your unpaid deposit. In what will come as a surprise to absolutely no one, the IRS charges interest on the FTD penalty.


Penalties and interest add up. If you have an employment tax dispute with the IRS—connect with the IRS at the phone number provided on the notice that you receive. Ignoring the notice—and the accruing penalties—will only make it a more expensive mistake. When you need to understand your options, talk to an experienced tax attorney for guidance.


Offshore or domestically, our experienced tax attorneys help you when challenged by tax litigation or criminal tax allegations

With offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC delivers strong representation and guidance to those facing significant tax liability, offshore tax concerns, or payroll tax issues. Call 800-579-0997 or contact us today.


Download The Guide to  Employment Tax Fraud