Running afoul of the Internal Revenue Service (IRS) is anathema to most business owners. The government can be quite ruthless when coming after companies for their money. In fact, simply being late on these payroll tax payments can incur financial penalties.
But stuff happens, as the adage goes. If you find yourself in this untenable situation, the following information may be helpful.
What penalties can you owe?
If you don’t pay your payroll taxes by the due date, you face trust fund recovery penalties (TFRP). One of the most common mistakes business owners face is not paying their Form 941 taxes. These are the FICA and other withholding taxes and being a mere day late nets you a 2% penalty. After five days, the penalty jumps up to 5%, and on the 16th day of nonpayment, it escalates to 10%. That’s also the penalty for those who fail to pay within the 10th day following the day they received an official IRS notice of their failure. The penalties can then go as high as 15% for other breaches.
Where else can you go wrong?
If you don’t timely provide the information on W-2 or 1099-MISC to your workers and independent contractors in a timely manner, the IRS can also lower the boom on your company.
Some business owners run into trouble by attempting to misclassify their hourly or salaried workers as independent contractors. They may do this to avoid withholding FICA or income taxes. But the IRS is quite savvy at discerning which employees are actually independent contractors and those who are not.
Everybody makes mistakes
If you get caught up in a tax mess, don’t beat yourself up about it. Instead, learn all you can about the matter so you can find a solution to your tax dilemma and minimize the penalties you must pay.