November 20, 2015

25273190_sGenerally, employers are legally required to file payroll taxes for their employees on a quarterly basis and pay them on a monthly or semi-weekly basis. While the best way to avoid any legal issues regarding payroll taxes is to pay them regularly and promptly, it is not uncommon for businesses to fall behind in their payments.

Unfortunately, businesses sometimes fail to pay their payroll taxes because they spend this money on other business expenses—unaware of the stiff penalties and consequences stemming from their inability to pay in a timely manner. In some instances, overdue payroll taxes can cause the IRS to file a federal tax lien against the business, or cause business owners to lose their business entirely.

If your business is currently falling behind on payroll taxes, don’t lose hope just yet. Here are a number of options for you to consider:

Penalty Abatement

If you have a convincing enough reason for failing to pay payroll taxes and are able to provide extensive documentation of such a reason, then the IRS may opt to waive or reduce Failure to Deposit penalties and thus reduce the amount you owe by up to one-third.

Payment Plan

If you are knowledgeable of the fact that your business is falling behind in payroll tax payments, it often pays to be proactive. It would be wise to contact the IRS and negotiate a payment plan or a discount for the unpaid taxes. In most instances, the IRS allows debtors to pay their old tax bills in monthly installments. Take note that with a payment plan, penalties and interest continue to accumulate.

Offer in Compromise

 If your business is unable to pay payroll taxes, you may want to consider submitting an offer in compromise. If the IRS believes that it is unlikely for you to ever pay the debt owed, then the agency is likely to settle only a portion of the total amount owed by your business. However, securing an offer in compromise is a much more complex and lengthy process for a business than an individual.

“Currently Not Collectible” Status

 If the present financial situation of your business is grim, you may request to be placed on a “currently not collectible” status temporarily. In such case, the IRS will agree to stop all collection efforts against you for a specific period of time. You will still owe the unpaid tax and penalties, and interest will also accumulate. Know, too, that the IRS might still file a Notice of Federal Tax Lien in certain situations against the taxpayer in CNC.

If you are behind on payroll taxes, remember that the IRS may not come after you right away. In fact, it may take over a year for the agency to contact you about your outstanding debt. However, this does not mean you should wait around for a notice to arrive. If you take the initiative, it may well be possible to work something out with the IRS and stay in business.

Categories: Blog, Business Tax Issues, IRS, Tax Penalties, Tax Tips, Taxpayers' Rights