Falling behind on payroll tax filings can put more than a business at risk. Unfiled payroll returns and unpaid employment taxes can lead to penalties, IRS collection actions, and personal liability for business owners and other responsible people. Gabaie & Associates, LLC helps businesses in Frederick get delinquent payroll filings in order and address the tax debt that follows.
Have unfiled payroll taxes? Call (410) 358-1500 or contact Gabaie & Associates to discuss your situation.
What Are Unfiled Payroll Taxes?
Unfiled payroll taxes can involve missing employment tax returns, unpaid payroll tax deposits, or both.
For many employers, federal payroll obligations include:
- Federal income tax withheld from employees
- Social Security and Medicare taxes
- Federal unemployment tax (FUTA)
- Quarterly or annual employment tax returns
Most employers file Form 941, Employer’s Quarterly Federal Tax Return, to report wages, federal income tax withholding, and Social Security and Medicare taxes. Some smaller employers may file Form 944 annually instead. Employers may also need to file Form 940 for federal unemployment taxes.
Employers must also deposit payroll taxes according to the schedule assigned by the IRS.
Why Are Unfiled Payroll Taxes a Serious Problem?
Payroll taxes receive special attention from the IRS because some of the money was withheld directly from employees’ wages.
Federal income tax, Social Security, and Medicare taxes withheld from employee pay are trust fund taxes. The employer holds these amounts for the government rather than treating them as ordinary business funds.
When payroll filings or deposits are missed, the IRS may:
- Assess penalties and interest
- Determine the amount it believes the business owes
- File a federal tax lien
- Levy business accounts or property
- Investigate whether individuals are personally responsible for the unpaid trust fund taxes
For a business already dealing with cash-flow problems, IRS collection activity can make it even harder to meet payroll and keep operating.
What Happens If My Business Hasn’t Filed Payroll Tax Returns?
Before addressing the balance, it is important to determine:
- Which payroll returns are missing
- Which payroll tax deposits were made
- How much was withheld from employees
- What payments the IRS has credited
- What penalties and interest have been assessed
- Whether the IRS has begun collection activity
The business may need to reconstruct payroll records before accurate returns can be prepared.
Can the Owner Be Personally Liable for Unpaid Payroll Taxes?
Yes. This is one of the biggest concerns with unpaid payroll taxes.
The IRS can impose a Trust Fund Recovery Penalty (TFRP) against a person responsible for collecting, accounting for, or paying certain withheld employment taxes who willfully failed to do so. The penalty can equal 100% of the unpaid trust fund taxes.
A potentially responsible person may include:
- A business owner or officer
- A corporate director or shareholder
- A partner
- An employee with authority over financial decisions
- Someone who controlled payroll funds
A job title alone does not determine liability. The IRS considers whether the person had the duty and authority to collect, account for, and pay the taxes and whether the failure was willful.
What Does “Willful” Mean for the Trust Fund Recovery Penalty?
Willfulness does not necessarily mean someone intended to break the law.
The IRS may consider a person to have acted willfully if they knew the taxes were not being paid or recklessly disregarded an obvious obligation to pay them. Using available business funds to pay other creditors instead of trust fund taxes can be evidence of willfulness.
What Payroll Tax Rules Apply to Frederick Employers?
Frederick employers may have both federal and state payroll obligations.
In addition to federal employment taxes, employers may have obligations involving state income-tax withholding and unemployment insurance. Frederick employers generally must file quarterly wage reports and pay state unemployment insurance taxes. Reports and payments are generally due within one month after the end of each calendar quarter.
These state obligations are separate from federal payroll taxes. If your business has fallen behind in several areas, you may need to address missing federal returns, state filings, and unpaid balances separately.
How Can a Tax Attorney Help With Unfiled Payroll Taxes?
The team at Gabaie & Associates, LLC can review your business’s IRS account and payroll records to identify missing returns and unpaid balances. The firm can also help prepare delinquent returns, respond to IRS notices, address collection activity, and determine whether you or another person may face personal liability for trust fund taxes.
Reconstructing payroll records can take time, especially if you’ve changed accounting systems or payroll providers.
What Records Are Needed to Catch Up on Payroll Taxes?
Reconstructing old payroll information can take time, particularly if your business has changed accounting systems or worked with multiple payroll providers.
Depending on the circumstances, you may need:
- Payroll reports and wage records
- Employee W-2s and W-3s
- Copies of previously filed Forms 941, 940, or 944
- Bank statements and canceled checks
- Payroll tax deposit records
- EFTPS payment information
- Accounting records and general ledgers
- IRS notices and account transcripts
If records are incomplete, other sources may help establish what the business paid and what employees were paid. The goal is to create accurate returns rather than simply submit paperwork to close out an old filing requirement.
What Happens After Missing Payroll Returns Are Filed?
Filing the missing returns does not necessarily resolve the tax debt. The IRS still needs to determine what the business owes, including any applicable penalties and interest.
Depending on the amount owed, the business’s financial condition, and the type of tax involved, options may include an installment agreement or another collection alternative.
Payroll tax debt can be more difficult to resolve than ordinary income tax debt, particularly when trust fund taxes are involved. An agreement that works for one business may not be appropriate for another.
Can Payroll Tax Penalties Be Reduced?
Sometimes. The IRS may remove certain penalties when a taxpayer can establish reasonable cause or meets another applicable exception.
That does not mean every late payroll filing qualifies for penalty relief. The facts matter, including why the returns or deposits were late and what steps the business took to meet its tax obligations.
A tax attorney can review the penalties on the account and determine whether requesting relief makes sense. If the IRS has already issued notices about the penalties, those notices should be addressed rather than ignored.
What If I Received a Letter 1153 or Form 2751?
A Letter 1153 generally notifies a potentially responsible person that the IRS is proposing a Trust Fund Recovery Penalty. The IRS may also provide Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, for the person to review and sign if they agree with the proposed assessment.
If you disagree with the proposed penalty, you have an opportunity to challenge it. The IRS generally gives you 60 days from the date of the letter to appeal, with additional time allowed for taxpayers outside the United States.
This is an important point in the process. Once a Trust Fund Recovery Penalty is assessed, the IRS can pursue collection against the individual’s personal assets. If you received a Letter 1153 or Form 2751, getting legal advice before responding can help you understand what is being alleged and what options you have.
What If the IRS Has Already Started Collecting?
Do not assume that collection activity means there is nothing you can do.
The IRS may levy a business bank account, issue other levies, file a federal tax lien, or take steps to collect an unpaid payroll tax balance. The available options depend on the status of the account and the type of tax owed.
A tax attorney can review the collection notices, determine what the IRS is seeking, and help identify the appropriate response. Acting sooner may also give the business more options than waiting until additional collection steps occur.
Unfiled Payroll Taxes for Frederick Businesses
Payroll problems can affect businesses of every size, from a small employer with a few missing quarterly returns to an established company with several years of delinquent filings.
If your business operates in Frederick, Gabaie & Associates can help address both the federal and state sides of a payroll tax problem. The firm’s Frederick office is located at 5100 Buckeystown Pike, Suite 250a, Frederick, MD 21704.
Frequently Asked Questions
Can you help with several years of unfiled payroll returns?
Yes. The firm can identify missing returns and help determine what needs to be filed.
Can you help if I received a Letter 1153 or Form 2751?
Yes. If the IRS is proposing a Trust Fund Recovery Penalty, an attorney can review the proposed assessment and help you understand your response options.
Can you help if the IRS has levied my business bank account?
Yes. The firm can review the collection action and your tax account to determine what steps may be available.
Where is your Frederick office located?
The Frederick office is at 5100 Buckeystown Pike, Suite 250a, Frederick, MD 21704. You can also reach the firm by phone at (410) 358-1500.
Can you help if I live or operate a business in Frederick?
Yes. Gabaie & Associates works with individuals and businesses dealing with federal and state tax problems in the Frederick area.
If your business has unfiled payroll tax returns, unpaid employment taxes, or an IRS notice you are not sure how to handle, getting the account reviewed can be a good place to start. Call Gabaie & Associates at (410) 358-1500 or contact the firm online to discuss your payroll tax problem.
