Payroll Articles
Tax Deposit Penalties
Penalties may apply if you do not make required deposits on time, if you make deposits for less than the required amount, or if you do not use EFTPS when required. The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. For amounts not properly or timely deposited, the penalty rates are
| 2% | - | Tax Deposits made 1 to 5 days late. |
| 5% | - | Tax Deposits made 6 to 15 days late. |
| 10% | - | Tax Deposits made 16 or more days late. Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due. |
| 10% | - | Tax Deposits made at an unauthorized financial institution, paid directly to the IRS, or paid with your tax return (but see Depositing without anEINon page 21 and Payment with return on page 18 for exceptions). |
| 10% | - | Tax Deposit amounts subject to electronic deposit requirements but not deposited using EFTPS. |
| 15% | - | Tax Deposit amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. |
Late tax deposit penalty amounts are determined using calendar days, starting from the due date of the liability.
Order in which tax deposits are applied.
Tax deposits generally are applied to the most recent tax liability within the quarter. If you receive a failure-to-deposit penalty notice, you may designate how your payment is to be applied in order to minimize the amount of the penalty. Follow the instructions on the penalty notice that you received. For more information on designating deposits, see Rev. Proc. 2001-58. You can find Rev. Proc. 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www.IRS.gov/pub/IRS-irbs/irb01-50.pdf. Example: Cedar, Inc. is required to make a deposit of $1,000 on June 15 and $1,500 on July 15. It does not make the deposit on June 15. On July 15, Cedar, Inc. deposits $2,000. Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the July 15 deposit and the remaining $500 is applied to the June deposit. Accordingly, $500 of the June 15 liability remains undeposited. The penalty on this underdeposit will apply as explained above.
Trust fund recovery penalty
If income, Social Security, and Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business.
The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.
A responsible person can be an officer or Employee of a corporation, a partner or Employee of a partnership, an accountant, a volunteer director/trustee, or an Employee of a sole proprietorship. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.
Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows that the required actions are not taking place.
Separate accounting when deposits are not made or withheld taxes are not paid.
Separate accounting may be required if you do not pay over withheld Employee Social Security, Medicare, or income taxes; deposit required taxes; make required payments; or file tax returns. In this case, you would receive written notice from the IRS requiring you to deposit taxes into a special trust account for the U.S. Government. You would also have to file monthly tax returns on Form 941-M, Employer's Monthly Federal Tax Return.