This is one of the most common and most difficult problems that we handle as small business accountants. It is common because when companies have cash flow difficulties, the IRS is sometimes considered the easiest supplier to not pay. It is also one of the most difficult because no matter what you do, a portion of that debt will never go away if unpaid.
Its Friday morning and time to cut your payroll checks. Collections of your receivables over the past month have been very slow, or you are in a natural slow period for your retail sales. You just don’t have enough money to take care of everything. You have to pay your people, your mortgage, your utilities, your suppliers, your child’s schooling, etc. It seems like the easiest way to handle the problem is to not make your payroll tax deposit. It happens once. It happens twice. You simply get behind.
Most experienced entrepreneurs have had this difficulty at least once in their careers. Many also find out that this is one of the most expensive mistakes you can make and possibly something that can shut you down.
Not making you payroll tax deposits within the three day window from the pay date on the check subjects you to penalties and interest. There is a failure to deposit penalty that starts at 2% with a maximum of 15%. There is a failure to pay penalty if you file your 941 or 944 and do not make the full payment with the form. This is a maximum penalty of 25%. Also, interest is charged quarterly until the entire debt is discharged. Further, an avoidance penalty of 10% is also possible under certain circumstances. Not making your payroll tax deposits can be one of the most expensive debts imaginable.
Let’s say that now you are in trouble and owe $50,000 in old payroll tax deposits. What can you do? Many make the mistake of thinking that this problem will go away in time. It will not. There are two sides to 941 deposits; the employee and employer sides. The first is the portion which is withheld from the employee’s check. The second is the portion that is doubled before the payroll tax is deposited. The employee portion is generally called the trustee or trust fund portion. You operate as a trustee on behalf of the Federal Government to get them this tax. It does not belong to you or the company. It is part of the employee’s paycheck. As such, the trustee portion of the obligation will never go away. If it is not paid, you will be assessed personally for the unpaid debt. No bankruptcy or debt forgiveness will ever make it go away, because it was never your money in the first place.
I once handled an estate where the person who passed away owed some payroll taxes from 20 years before they died. Their property ended up being sold rather than given to their descendants just to satisfy the government.
Make your payroll tax deposits timely. If you have consistent problems making these deposits, then you need to make some fundamental changes in your business so that you can pay your bills. Consistent cash flow difficulties are sign of un-profitability. Either way you need someone experienced to help you deal with these problems.
If you have difficulties with Unpaid 941 Taxes – What happens if you don’t make 941 payments Chicago Illinois?, please don’t hesitate to contact us.
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