Payroll taxes are part of life. They are also mandatory for companies with employees. Both federal and state taxing authorities expect companies to comply with the law regarding payroll deductions, employer contributions, tax pays, etc. Failure to report and pay taxes on time almost always leads to penalties.
Unfortunately, life happens. Things do not go off as planned and companies find themselves owing back taxes. What then? First and foremost, ownership should not delay rectifying the situation. The longer a company waits to pay its taxes, the more significant penalties become. Federal and state authorities may also consider delays as an intentional attempt to avoid paying taxes. That could lead to civil or criminal charges.
Filing and Paying
It should be noted that filing and paying are on different schedules. Businesses must file their quarterly tax returns using Form 941 on a quarterly basis. The form is due by the last day of the month following the end of the quarter. As for paying, there are different schedules for different taxes.
Employers must pay income and FICA (Social Security and Medicare) taxes either monthly or semiweekly. Companies with $50,000 or less in tax liabilities pay monthly. Everyone else pays semiweekly. Payments are made through the online Electronic Federal Tax Payment System (EFTPS). Most states follow the federal schedule for convenience purposes.
Note that the IRS assesses a 2% penalty on taxes paid up to five days late. From 6 to 15 days, the penalty is 5%. They charge 10% on any payments more than 16 days late and 15% beginning 10 days after the first bill is sent to the taxpayer.
Finally, bear in mind the IRS also charges interest on any unpaid balances. That means you are paying between 3% and 6% of your total tax bill in interest, on top of the penalties for filing and paying late. Being late for any length of time could become a very costly exercise.
How to File Back Taxes
Should you find yourself behind, the best course of action is to pay and file as soon as possible. Do not pay extra money to cover interest and penalties. That is dealt with later on. Just pay and file as you normally would with the expectation that the IRS will assess penalties and interest.
Rest assured that taxing authorities will know your payment is late. They will send you a bill for interest and penalties. That bill is paid separately. You can pay it online or by remitting a check to the IRS. If you pay online, you do so through the federal EFTPS system.
As for state taxes, it would be impossible for us to detail how each state does this individually. Needless to say that most follow the federal schedule for payments, but penalties and interest differ from state to state, as do filing and payment details. It is best for employees to consult state taxing authorities to figure out what to do when filing and paying late.
Avoid Getting Behind
This post is offered with the understanding that sometimes being late on payroll taxes is unavoidable. However, it is always best when companies do whatever they can, at whatever the cost, to pay on time. Government penalties are stiff and unforgiving for the express purpose of making it unaffordable to be late.
We suggest setting up a separate bank account into which both employee and employer tax contributions are placed with every payroll run. We also advise that employers never, ever borrow from the payroll accounts. Doing so is a recipe for disaster.