Under the law, the employer is solely responsible for withholding, reporting, depositing and paying federal employment taxes for his or her employees. The federal employment tax is typically composed of federal income tax, the Federal Insurance Contributions Act (FICA) payments comprising Social Security and Medicare, and employer contributions to the Federal Unemployment Tax Act (FUTA) trust fund. Failure to comply with your legal obligations as an employer could result in serious penalties.
- The Internal Revenue Service (IRS) levies a 2 percent penalty on federal employment tax deposits that are between one and five days tardy.
- A 5 percent fine results from a deposit that is 6 to 15 days overdue.
- You will be assessed a 10 percent penalty for failing to deposit your tax for 16 days or more.
Don’t Dawdle When Your Taxes Are Late
You must pay any outstanding federal employment taxes you owe as quickly as possible after receiving an official notice from the IRS for failure to pay. Delaying your payment could compound the penalties you face.
- When you receive a notice informing you that you owe employment taxes, you will be charged a 10 percent penalty as long as you directly pay the deposit to the IRS within 10 days.
- If you allow more than 10 days to elapse without complying with the notice, you will be assessed a 15 percent fine.
- There is also a 10 percent penalty when your deposit is made to an unauthorized financial institution.
The Assessments Keep Piling Up
The IRS has significant resources and legal latitude to go after businesses that continue to neglect their duties. As delinquency stretches beyond a month, the gloves begin to come off.
- The IRS penalizes you at 5 percent of the unfiled return’s value, up to a maximum of 25 percent, for each partial or full month in which you fail to file a return.
- In months or partial months that you are late in filing withheld federal employment taxes, the IRS will assign a penalty of 0.5 percent of the tax amount, up to 25 percent.
- If you don’t withhold required FICA and other income taxes or if you withhold taxes but fail to remit them, the IRS is authorized to levy penalties up to 100 percent of taxes outstanding.
Severe Consequences for Willful Non-Compliance
- Deliberate efforts to avoid paying any portion of your required tax obligation could subject you to serious criminal charges. The minor, short-term gains aren’t worth the serious costs to your livelihood and potentially your freedom. Purposely attempting to evade federal employment taxes constitutes the commission of a felony punishable by a fine of up to $500,000 for a corporation or up to $100,000 for an individual, and a possible five-year prison term.
- Willful failure to collect or remit to the IRS any federal employment tax is a felony that may be punished with up to a $10,000 levy and up to five years in prison.
- Intentionally omitting to file a return, to maintain records of federal employment taxes, or to furnish the IRS with information it requires and to which it is lawfully entitled constitutes the commission of a misdemeanor. This transgression is punishable by a fine of up to $100,000 for a corporation or $25,000 for an individual. Additionally, you could face a prison sentence of up to one year.
- If you knowingly submit a false IRS form, you could be subject to an assessment of up to $1,000 and a prison term of up to one year.
- If the person responsible for the withholding, collection, accounting for, and payment of the federal employment taxes deliberately signs or submits any document known to contains false statements, he or she will be guilty of the commission of a felony. Possible punishments include a fine of up to $100,000 and a term of imprisonment of three years.You work hard to build your business. Don’t let carelessness or intentional malfeasance ruin everything for which you’ve worked. Learn the IRS rules for filing federal employment tax and follow them exactly.
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