941 Tax Deposits Penalties
Need help with unpaid payroll taxes or the FTD penalty?
941 Tax Deposits Penalties: Late Payroll Tax Penalty
Failing to make your payroll tax deposits on time can lead to a failure-to-deposit penalty. These are also commonly known as 941 tax deposit penalties. The amount of the federal tax deposit penalty varies based on your tax obligations and how late your payment is.
Learn more about what tax laws say about payroll tax deposits, your obligations as an employer, and what you can do if you fall behind in this guide.
Need help with unpaid payroll taxes or payroll tax penalties? Want tax advice on issues related to withholding taxes or any other business taxes? Contact us at the W Tax Group today to discuss your tax situation with a professional.
Key takeaways:
- Due dates – There are several deposit schedules for businesses, but most businesses must deposit payroll taxes monthly or semi-weekly.
- Penalties – Failing to deposit on time can lead to penalties as high as 15% of the amount due, depending on how late you pay.
- Act promptly – Penalties can snowball rapidly for large businesses, but small businesses are often hit hardest by payroll tax penalties.
- Consequences – IRS can issue tax liens and seize assets for unpaid payroll taxes.
- Guidance – Our team of tax pros can help you seek relief from this and other penalties.
Failure-to-Deposit Penalty for Late Payroll Tax Deposits
When you make your payroll tax deposits late, you can incur a failure-to-deposit penalty. The penalty rate is determined by how late your payment is, and the amount you pay is a percentage of the amount owed:
- 2% if you’re one to five days late.
- 5% if you’re six to 15 days late.
- 10% if you’re 16 days late or if you pay within 10 days after the IRS’s first notice for late a deposit has been issued.
- 15% if you pay 10 days or more after the IRS notice has been issued.
For instance, if you’re supposed to make a $3,000 deposit, your penalty will be $60 if you are five or fewer days late. The penalty will be $450 if you make your deposit 10 or more days after the IRS sends the notice. Usually, the IRS sends Notice CP220 or CP210 about this penalty.
The penalty amounts grow quickly as your tax liability increases. For instance, your 941 late deposit tax penalties can be $1,500 if you have a $10,000 liability that you pay 10 days or more after the notice is issued. If your tax liability was $100,000, the total penalty might be up to $15,000 if you are significantly late.
Don’t forget that the IRS will also charge interest on top of the penalties. Interest is charged on the initial amount due and your penalties–and since interest compounds daily, you’ll also end up paying interest on past interest charges.
When Are Payroll Tax Deposits Due?
It’s fairly common for businesses to incur failure-to-deposit penalties simply because they misunderstand their deposit dates. After you withhold income taxes and other FICA taxes from your employees’ paychecks, you need to deposit them with the federal government.
The due dates and the deposit schedule vary based on your payroll tax liability.
- Annual Deposits – Very small employers who withhold $1000 or less in payroll taxes every year only need to make a single deposit, and they can do so when they file Form 944 (Employer’s Annual Federal Tax Return).
- Monthly Deposits – Other employers must file Form 941 (Employer’s Quarterly Payroll Tax Return) quarterly, but they must deposit their taxes throughout the quarter. Monthly deposits are due by the 15th of the month following the month that they made payments. The due dates move to the next business day when they fall on a weekend or holiday.
- Semi-Weekly Deposits – Others must follow a semi-weekly deposit schedule where they deposit payroll taxes for payments made on Wednesday through Friday by the following Wednesday, and they must deposit taxes for payments made between Saturday and Tuesday by the following Friday.
- Next day – If you withhold more than $100,000 on any given day, you must make your deposit by the next business day.
If you’re not sure when you should be paying payroll taxes, consult with a tax pro. They can guide you in the right direction.
What Is a 941 Tax Deposit?
The 941 tax deposit includes all of the employment taxes withheld from your employees’ paychecks. This includes Social Security and Medicare taxes and federal income tax. You also have to deposit the employer’s portion of Social Security and Medicare taxes. Additionally, you may also need to pay federal unemployment tax.
Many employers ultimately pay federal unemployment tax just once per year. When you file the returns for your employment taxes, the forms will guide you through the calculations to see if you need to pay this tax during the quarter when you are filling. Typically, you only need to pay when your premiums exceed $500 for the quarter.
How to Pay 941 Tax Deposits
After you withhold income tax and FICA taxes from employee wages, you need to make the deposit. The IRS prefers that businesses pay via Direct Pay or the free Electronic Federal Tax Payment System. There are other options, such as ACH deposits and wire payments, that may charge an added fee.
Make sure that you pay careful attention to the timing of the payment. Even if you pay your employment taxes on the deposit due date, you can incur a failure-to-deposit penalty if you don’t make the deposit by a certain time during the day.
According to the Department of the Treasury, deposits for employment taxes are due by 8 PM Eastern Time on the day before the actual due date. If you pay later than that, you risk incurring the 2% failure-to-deposit penalty. This may not sound like a lot, but it can really add up, especially if you pay a lot of employment taxes.
You may also use the Federal Tax Collection Service for a same-day payment if you miss the 8 PM deadline the day before the due date. If you struggle to meet the 8 PM deadline, you can set up your payment early and request to have it withdrawn from your bank account on the due date.
When Is the 941 Payroll Tax Return Due?
You don’t actually file your payroll tax return when you make the deposit from your bank account. Instead, you make deposits during the quarter on a monthly or semi-weekly basis. Then, you must file the 941 form by the last day of the month following the end of the quarter.
To illustrate, imagine that you’re a monthly depositor. You make your deposits for income tax, Social Security, and Medicare withheld from your employee’s wages during January in February. You then deposit February withholding in March and March withholding in April. Finally, on the last day of April, you must file your 941 tax form.
941 Taxes Versus Payroll Deposits
The 941 is the tax form that details how much you have paid your employees and how much you have withheld from their paychecks. This is also the form that businesses use to calculate if they need to pay federal unemployment tax. You won’t incur a failure-to-deposit penalty if you file this form late, but you may face other penalties if your business fails to file this on time.
In particular, if you have unpaid tax due to late payments, you can incur a failure-to-file penalty that is 5% of the unpaid tax. Make sure that you note your monthly deposits correctly on this form. If you note the wrong dates, you may end up incurring a failure-to-deposit penalty even if you actually made the deposits on time and didn’t have any late payments.
Penalty Relief for Failure-to-Deposit Penalty
If you’ve incurred a failure-to-deposit or FTD penalty, you should apply for penalty relief. A tax professional can help you reach out to the IRS and ask them to remove your 941 late payment penalty. Usually, you can get first-time penalty abatement if you have never had a penalty like this in the recent past.
Alternatively, you may be able to get penalty abatement for reasonable cause. Reasonable cause can include a variety of reasons such as fires, natural disasters, inability to get your supporting documents, or a death in your family. You may also be able to get FTD penalties or other IRS charges removed if you relied on written advice from the IRS that led to the late filing or deposit. However, you cannot claim reasonable cause due to a misinterpretation of the law.
Ignorance is not a justifiable excuse in this situation. As a business owner, you’re supposed to know your tax obligations.
How to Get Help With 941 Deposit Penalties
Ideally, you should reach out for legal representation when you receive your first notice. The notice should outline the amount of your 941 late payment penalty. The IRS will likely demand immediate payment if you have an unpaid deposit.
When you contact a tax professional about the failure-to-deposit penalties, they will talk with you about how to apply for penalty abatement for the FTD penalty. They’ll let you know if you’re likely to qualify for penalty abatement and outline the forms and supporting documents you need to file.
They can also help you set up a payment plan if you have an unpaid deposit that you still need to take care of. If these options don’t apply, they will help you explore other IRS resolution options.
Get Help With the Late Payroll Tax Penalty
Payroll taxes are critical for employers, and the IRS takes these taxes more seriously than almost any other tax. The 941 tax deposit penalties aren’t the only penalties you can face in relation to payroll tax.
If you don’t pay these taxes, you can also incur the trust fund recovery penalty, which is 100% of the trust fund taxes or the taxes that you withheld (or should have withheld) from your employer’s paycheck. There are also penalties for misclassifying workers as independent contractors when they should be employees. You may also face additional penalties or even criminal charges if the government believes that fraud is involved.
To get help with the failure-to-deposit penalty, contact us at the W Tax Group today. We can start with an introductory conversation about your situation. Then, we can help you decide which resolution option is the best for your situation.
Frequently Asked Questions
What happens if I continue not to pay late payroll taxes?
The IRS may place liens or seize assets to collect past-due taxes. They take payroll taxes very seriously, as the money employers are meant to collect from employees is technically the IRS’s from the moment it’s taken out. If they cannot recover what they are owed, they may assess a Trust Fund Recovery Penalty against the party responsible for paying the tax.
Is penalty abatement an option?
Penalty abatement may be available for late payroll taxes, depending on your history of tax compliance and your reason for paying late.
How can I avoid payroll tax penalties in the future?
Working with an accountant, payroll processing company, or other financial professional can help ensure appropriate withdrawals and IRS deposits. Many employers also find it helpful to automate IRS deposits.
What if you can’t afford to make payroll tax deposits on time?
If you can’t afford to make your deposits on time, you should revisit your business budget. Alternatively, you may want to look into a loan. The IRS also accepts credit and debit cards for payroll taxes, but there is a processing fee.
What if you make the deposit late because you don’t have a bank account?
Then, contact the IRS and ask for penalty abatement. When you file your payroll tax form (Forms 941, 943, 944, or 945), attach a letter asking for relief. Also, include a letter from the bank that refused to let you open an account. Write “unbanked” at the top of the payroll tax return.
