Federal employment tax and trust fund penalties – tips and tricks
Posted Oct 08, 2014
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FEDERAL EMPLOYMENT TAX AND TRUST FUND PENALTIES ARE COMMON
According to the 2013 Internal Revenue Service Data Book, the IRS issued 6.8 million penalties related to employment taxes from 10/1/2012 to 9/30/2013 totaling $4.5 billion dollars—an amount equal to the cost to construct the Naval aircraft carrier, U.S.S. Ronald Reagan!
These penalties can hurt—especially small employers:
For example,
- penalties for failure-to-file reports and pay taxes, combined, normally equal 5% of the unpaid tax per month, up to 25% of the taxes owed,
- penalties for payroll tax deposits not properly or timely deposited range from 2% up to 15%, depending on when payment is made,
- and the trust fund penalty for nonpayment of amounts withheld from employees’ paychecks is equal to the total amount withheld.
Abatement may be available
But here is a bit of good news. During this same period, 1.1 million abatements were granted totaling $1.9 million. The IRS will waive (i.e., abate) penalties when allowed by law if it can be shown that an employer acted reasonably and in good faith.
There is even an IRS first-time penalty abatement procedure, often overlooked, that can be obtained for a failure-to-file, failure-to-pay, or failure-to-deposit penalty if certain criteria are met. Our office is experienced with and can aid in the request of this abatement.
You can read more about this procedure in the following article that was published in the July 2013 issue of The Tax Advisor at:
What can employers do to prevent penalties?
1. Make payroll tax payments a top priority – NEVER BORROW FROM THE IRS!
2. Be careful who you hire to do your payroll. Even the use of a third party payer, such as a payroll service provider, does not relieve you of the responsibility to ensure tax returns are filed and all taxes are paid or deposited correctly and on time.
3. Respond promptly to all notices received. Some matters may even be resolved with a phone call. In most cases, the IRS will work with you to make payment arrangements on balances due.
If you do receive a notice from the IRS, do not ignore it. Please give our office a call where our experienced, professional staff will work with you to resolve the matter in a timely, efficient manner.
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