It is not uncommon for small and medium-sized business owners to face this issue. A bad contract, a slow-paying client, or simply added expenses can present the dilemma of keeping the lights on or hoping that next week “we can catch up.” The problem is, sometimes the funds are just not there to catch up.
Why the IRS Treats Payroll Taxes Differently
Falling behind on your Federal Tax Deposits (FTDs) is a serious problem that needs your attention right away.
There are two parts to the Federal Tax Deposits reported on IRS Form 941 each quarter: your contributions to your employees’ Medicare and Social Security, and the funds withheld from your employees’ paychecks — which are considered a trust fund. Once you make that payroll, the withheld funds belong to your employee, and you are responsible for paying them over to the government on their behalf.
The withheld funds belong to your employee.
The IRS prioritizes FTD delinquencies, and so should you. Because those funds were already withheld from your employees, the government treats an unpaid payroll tax balance as one of its highest collection priorities.
The good news is that a payroll tax problem is manageable when it is addressed early. What matters most is showing the IRS that the problem has stopped growing.
What Is the Best Thing to Do If I Am Behind on Payroll Tax Deposits?
Do not delay filing your 941 returns. File the returns on time and include any payment you can with the return.
- Start making your CURRENT deposits as soon as possible. For example, if it is July and you could not make your June (second-quarter) deposits, make your July deposits first. This helps prevent your liability from compounding — what the IRS calls “pyramiding.”
- Get current, then resolve the back taxes. Once you are current, you may qualify for a payment plan or even an Offer in Compromise.
- Get experienced help. Seek advice from a tax professional who understands IRS enforcement procedures and can help you navigate a situation like this.
Remember: business owners, corporate officers, bookkeepers, and other people responsible for making sure the trust funds are paid can be exposed to the Trust Fund Recovery Penalty — and, in some cases, to criminal charges and fines.
There is no reason to panic, but there are many reasons to act immediately. The earlier you start taking care of a delinquent employment tax liability, the more options — and the greater the likelihood of resolving it successfully — you will have.
We are small business owners and former Revenue Officers who investigated thousands of these cases over our careers. We understand both sides of the issue, and we are here in San Antonio, Central, and South Texas, ready to meet with you in person and help you put these problems behind you.
The Longer You Wait, the Fewer Options You Have.
Your case review is free, confidential, and comes with no obligation — just a clear picture of where things stand and what can still be done.