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Unpaid Payroll Taxes
Falling behind on payroll taxes is one of the most serious tax problems a business owner can face. The IRS treats unpaid payroll taxes as a form of theft from employees and pursues these debts aggressively, including holding individual owners and officers personally liable. Attorney James Maule helps business owners resolve payroll tax debt, defend against personal liability assessments, and protect their businesses and personal assets.
Penalties for Late Payroll Tax Payments
The IRS imposes escalating penalties for late deposits. They compound quickly and come on top of interest charges.
1-5 Days Late
A 2% penalty applies when payroll taxes are deposited one to five days after the due date. Minor on its face, but it signals the start of IRS scrutiny.
6-15 Days Late
The penalty increases to 5% if the deposit is six to fifteen days late. The IRS begins sending notices.
16+ Days Late
A 10% penalty applies when deposits are more than fifteen days late, or within ten days of the first IRS notice. This often triggers more aggressive collection.
Unresolved
The maximum 15% penalty applies to amounts unpaid more than ten days after the first IRS notice, or after a demand for immediate payment. Liens and levies often follow.
Criminal Liability Is Also Possible
In egregious cases, the IRS can pursue criminal charges for willful failure to collect, account for, and pay over employment taxes. Under IRC Section 7202, this is a felony carrying fines up to $10,000 and imprisonment of up to five years. While criminal prosecution is relatively rare, it underscores how seriously the IRS treats payroll tax obligations.
The “Responsible Person” Penalty
Unlike most business debts, unpaid payroll taxes can follow you personally. Under IRC Section 6672, the IRS can assess the Trust Fund Recovery Penalty (TFRP) against any individual it deems a “responsible person” who willfully failed to pay the taxes. The IRS can pursue your personal bank accounts, your home, and your other assets to collect the business's unpaid payroll taxes.
The trust fund portion includes federal income tax withheld from employee wages and the employee's share of Social Security and Medicare taxes. These funds are held “in trust” for the government.
A responsible person assessment is not limited to one individual. The IRS can and often does assess the TFRP against multiple people within the same business, including owners, corporate officers, partners, and even bookkeepers or payroll managers who had authority over financial decisions.
Who Is a “Responsible Person”?
The IRS looks at several factors. You may be considered responsible if you had:
- Authority to sign checks or direct payments on behalf of the business
- Control over which creditors are paid and in what order
- Day-to-day authority over financial operations of the business
- Signatory authority on bank accounts used for payroll
- Responsibility for filing or ensuring the filing of employment tax returns
- Authority to hire and fire employees
If the IRS contacts you about a responsible person investigation, do not provide a statement or sign anything without legal representation. Anything you say can establish your liability.
Payroll Tax Resolution Options
Every payroll tax case is different. I analyze your specific situation and pursue the strategy that best protects both your business and your personal assets.
Deferment of Collection
When your business is facing a temporary cash flow crisis, I can negotiate a temporary hold on collection activity. This buys time to stabilize while I develop a longer-term resolution strategy.
Levy and Lien Removal
The IRS can seize bank accounts, garnish receivables, and place liens on business and personal assets. I work to get these removed quickly so your business can continue to operate and generate the revenue needed to resolve the debt.
Installment Agreements
I negotiate manageable monthly payment plans that satisfy your payroll tax debt over time without crippling your operations. The key is structuring payments the IRS will accept while keeping the business viable.
Penalty Reduction and Abatement
Penalties can account for a significant portion of total payroll tax liability. I pursue abatement through reasonable cause arguments, first-time penalty waivers, and demonstration of good compliance history.
Offer in Compromise
In certain circumstances, the IRS may accept less than the full amount owed. While more difficult to obtain for payroll tax debt than other types, I provide an honest assessment of whether this option is realistic.
IRS Audit Defense for Payroll Taxes
If the IRS is auditing your payroll tax practices, including worker classification or employment tax returns, I represent you throughout the examination and protect your interests at every stage.
Why You Need to Act Now
Falling behind on payroll taxes is rarely intentional. Cash flow problems, unexpected expenses, and business downturns happen. But the IRS does not distinguish between a struggling owner and a negligent one when it comes to collection. The longer you wait, the fewer options you have.
- Penalties and interest accumulate daily. The combined effect of late deposit penalties, failure-to-file penalties, and daily interest can cause the debt to grow rapidly.
- The IRS moves faster on payroll taxes. Payroll tax cases are a high priority. The IRS will assign a Revenue Officer sooner and escalate collection actions more quickly than with income tax debt.
- Personal liability assessment can happen at any time. The IRS can begin a responsible person investigation without warning. Early representation helps protect you before the assessment is made.
- Your business operations are at risk. IRS levies on business bank accounts and receivables can shut down operations. Proactive resolution protects your ability to keep running and your employees paid.
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