At Hacker Accounting, we often work with businesses who have had a bit of trouble staying on top of their payroll tax payments. Though failure to pay in a timely fashion can eventually have serious consequences, one missed payment doesn’t mean the IRS will immediately shut down your business.
There are three types of Payroll tax an employer is responsible for paying: social security tax and Medicare tax, collectively known as FICA taxes, and federal income tax. These taxes should be withheld from each paycheck and submitted to the IRS en masse on a monthly basis.
Where businesses get into trouble is when they fail to submit these payments on time. Money gets tight and they skip a month or two of IRS payments to make ends meet with the utility companies. The next thing they know, they’re receiving collections notices and being charged more interest by the day.
The amount of interest charged varies depending on how behind you are on payments:
1-5 days late: 2 percent of taxes due
6-15 days late: 5 percent of taxes due
16 or more days late: 10 percent of taxes due
Use a Payroll Service
Businesses fall behind on their payroll taxes because they forget to pay them or simply prioritize incorrectly. If you’ve already begun to fall behind, consider hiring a payroll service. Payroll services take care of withholding the appropriate amounts and pay them electronically for you to avoid missed deadlines or late fees.
Keep in Touch
Even if you are unable to pay the full amount owed, staying in communication with the IRS can help reduce the amount of interest and fines you accumulate. Ignoring their attempts to get in touch with you can make consequences worse. It’s better to have a documented history of being proactive about your debt.
Ask for a payment plan
If you are unable to pay the full amount owed immediately, ask for a payment plan. Smaller monthly installments will be more manageable than paying one large lump sum. Remember that interest will continue to accumulate until the amount is paid in full.
Offer in Compromise
An offer in compromise is the tax equivalent of short-selling a home — it’s a lengthy formal process that allows debtors to pay less than the amount owed after providing detailed information about their dire financial situation. This is a good solution for about one in four businesses that fall far behind in paying their taxes.
If nothing else is an option, you may need to consider filing for bankruptcy. Though not a fix-all or the ideal choice in any situation, it can reduce or even eliminate some of your business’s tax debts.
Have More Behind On Payroll Tax Questions?
Want to learn more about payroll taxes? Looking to hire a payroll service to manage your tax payments? Give Hacker Accounting a call at 602-375-5251.