Employers have requirements to both state and federal (and sometimes even local) agencies in regard to filing reports and paying payroll taxes. Failure to file/pay timely may result in penalties and interest based on the schedules established by the agency. In the case of IRS penalties, if payroll taxes are paid 1-5 days late, the amount is 2% of the tax due. If 16 days late, it jumps to 10%. Each state has its own schedule and it isn’t possible to list them in this post. Check your tax agency’s website or pamphlets for more information on specific fines.
If you do fail to file or pay timely and have good cause, generally you can request a waiver of the penalty. Good cause generally is deemed to have occurred if the circumstances causing the delay were beyond the control of the employer. They must generally establish that they acted in good faith and in a diligent manner, and the circumstances could not have been reasonably foreseen. For instance, events such as a hurricane, flood, or fire are generally situations where agencies will extend grace if the employer requests a waiver in the time allotted to do so.
Purposely failing to file returns or pay the taxes due to not having the time or finances is not good cause. Employers are expected to know due dates, proper calculations of tax, and adhere to these guidelines. No waiver of penalties will apply in these cases.
If the amount you owe is more than you can pay immediately, you can usually request an installment agreement. It is imperative that you follow all rules (such as keeping all new payroll liabilities paid timely, filing all required returns on time, and continuing to pay the past due balance on the set schedule). Failing to adhere to the requirements of the installment agreement may mean that the full balance is immediately due and collection action may occur without notice.
Collection action may occur in a few different ways. Generally the first step is to place a lien on your real or personal property. A lien is a claim on property until the debt is satisfied meaning once your account is paid in full, no claim against your property exists any longer. If after the lien is placed the tax is not paid, the agency may file a levy with your financial institution to freeze your funds and require the bank to forward them to the tax agency to satisfy the debt. If funds are not available in a bank account to clear the tax balance, a warrant to seize business or personal assets may be served to the employer. If the value of the property is not enough to satisfy the debt due, a garnishment of wages from future employment may occur.
If you feel the assessment is in error, you may be able to contact the agency to speak with a tax advocate to go through the information and assist with a request to reduce the tax due. A tax advocate is there to review the facts and ensure your rights have been protected. They also help with resolving the tax issue at hand.
Of course it’s better to stay in compliance by filing returns and paying tax timely. But if for some reason you find yourself in the situation where penalties and interest are due, make sure you are aware of your rights and get help to resolve your issue. And if the thought of handling your own payroll processing, reporting and paying tax makes you nervous because you’re afraid you’ll make a mistake, we are here to help. Call us today at 310-534-5577 for a quote!
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