The IRS is serious about collecting payroll taxes and may even file legal action against your business if you fail to file or pay. In some cases, you may face hefty fines, criminal charges, prison time, and have the IRS seize your business property and assets. When your Maryland business has unfiled payroll taxes, you need tax attorney Juda Gabaie of Gabaie & Associates, LLC, to aggressively fight for your business to protect your future.
Payroll Tax Filing Requirements
The IRS requires all businesses to make regular Federal payroll tax payments, report accurate information, and file applicable informational returns. Your business must provide all employees with a W-2 Form and all independent contractors with Form 1099 showing the amount of compensation they received (including wages, tips, and other compensation) and the amount withheld for taxes.
Businesses must use the IRS's Electronic Funds Transfer (EFT) system to deposit employer and employee Medicare and Social Security taxes, either monthly or semi-weekly. This is based on your previous year's Form 941, not your employee's pay schedule. Employers who have more than $50,000 per year in tax withholding must deposit semi-weekly while those with less than $50,000 in tax withholding deposit monthly. The IRS will notify you how often you need to deposit.
Your business must also pay Federal Unemployment Tax Act (FUTA) tax each quarter if you paid more than $1,500 in wages in any calendar quarter.
Employers must file with the IRS:
- Form 940,
- Form 941, and/or
- Form 944.
Form 940 is to report your annual FUTA tax. Form 941 is filed quarterly to report employee wages, employer withholdings, and Medicare and Social Security Taxes. Alternatively, very small employers file Form 944 annually to report employee wages, employer withholdings, and Medicare and Social Security taxes. Form 944 is only for employers whose annual tax withholding is less than $1,000 for the year. The IRS encourages businesses to e-file the required forms but may accept paper filings in some cases.
Penalties for Failure to File
If your business fails to file its payroll taxes, it faces the failure-to-file penalty, which is five percent for each month up to 25 percent.
The IRS will find a way to collect its money, even if you ignore its written notices and delinquency statements. Failure to file can result in:
- garnishment of your bank accounts,
- levy on account receivables,
- a lien attached to your real property, or
- a lien attached to your business equipment.
Interest and penalties continue to compound accrue until you file and pay. In some cases, you could lose your business.
The IRS penalizes businesses who deposit their payroll tax late and those who file their Forms 941 or 944 late. The penalties increase the later the business files.
If your required payroll tax deposit is between one and five days late, the IRS charges your business a penalty of two percent of the required payment. Deposits made between six and 15 days late have a five percent penalty and a ten percent penalty for deposits more than 16 days late, plus interest.
If you file Form 941 late, the IRS imposes a penalty of five percent per month or partial month you are late, up to a maximum of 25 percent.
In addition to the late filing and late deposit penalties, your business could be subjected to the IRS's negligence penalty. This is an additional fifty percent of the interest charged on any underpayments.
The IRS defines negligence as any "careless, reckless or intentional disregard" of tax rules and regulations. Because this is a penalty, you cannot claim the interest as a tax deduction.
The IRS distinguishes fraud from negligence, noting that fraud is an intentional action to evade taxes. This may include:
- Making false statements about understated or omitted income;
- Large discrepancies between reported income deductions and actual deductions, or claiming false deductions, credits, or exemptions;
- Concealing income sources;
- Numerous errors that benefit your business;
- Keeping fictitious records or failing to keep records;
- Providing incomplete information to your business's tax preparer;
- Making large and frequent cash dealings; or
- Verbally misrepresenting facts.
Generally, one indication of fraud is not enough for the IRS to charge your business the fraud tax penalty. Instead, several acts as a whole indicate fraud.
The tax penalty for fraud is 75 percent of the tax your business did not pay as a result of the fraud. This is a penalty, thus, you cannot claim the interest as a tax deduction.
Previously, the IRS offered amnesty to businesses who willfully fail to disclose offshore assets and income with the Offshore Voluntary Disclosure Program. However, the IRS discontinued this program in September 2018, so businesses face hefty penalties and possible criminal charges for non-compliance. Individual taxpayers with offshore assets and income can still use the streamlined filing compliance procedures if they were unaware of their tax obligations.
The IRS operates under a voluntary compliance system, which means that the IRS expects your business to file accurate annual tax returns without government intervention. Paying your tax obligation is mandatory.
Some businesses are non-compliant with IRS tax rules either because of a misunderstanding or due to deliberate evasion. The IRS audits approximately one percent of all tax returns filed, usually triggered by mismatched information submitted on tax returns.
Contact an Experienced Maryland Tax Attorney Today
If your business has unfiled payroll taxes, you need experienced Maryland tax attorney Juda Gabaie to fight for you. Issues with the IRS are very serious, and your business may be facing severe financial penalties, liens, or even the seizure of your assets.
You cannot ignore IRS tax problems and expect them to go away. The longer you ignore them, the more severe the penalties your Maryland business faces. Whether your unfiled payroll taxes are the result of an honest misunderstanding or willful non-compliance, you need experienced legal representation to protect your financial future. For a free consultation, contact tax attorney Juda Gabaie today online or at (443) 345-8291.