Failure to deposit penalty is imposed as per I.R.C. § 6656(a) when a person (Individual or entity ) who withheld taxes on various payments -be it salary or any other payments, but did not deposit the withheld amount to Govt. treasury. Then, the IRS will assess a failure to deposit penalty (FTD) which increases with the delay in deposits. The FTD penalty begins to accrue if your tax deposits are one day late. Depending on the amount of taxes you are depositing, you will have a quarterly, monthly, or semiweekly deposit schedule.
We have put more on the failure to deposit penalty . But most funamental is the reference to section 6656 of IRC to know the actual law on penalty for failure to deposit.
I.R.C. § 6656(a)-Underpayment Of Deposits — In the case of any failure by any person to deposit (as required by this title or by regulations of the Secretary under this title) on the date prescribed therefor any amount of tax imposed by this title in such government depository as is authorized under section 6302(c) to receive such deposit, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be imposed upon such person a penalty equal to the applicable percentage of the amount of the underpayment.
Failure to Deposit Penalty Calculator
How to Determine Tax Deposit Schedule?
So, you must be asking “when are payroll tax deposits due“. Well , the payroll taxes deposit schedule are computed for employers based on a look-back period which is the period of the 12-month ending on the most recent June 30. This time period is called . So the look-back period to submit employment tax deposits in 2019 would be the 12-month period ending June 30 of 2018.If you are a new employer and you did not have employees during the “look back” period, you are a monthly depositor. Other considerations include:
- If your payroll tax obligation is less than $2,500 in a quarter, you can deposit these taxes through a Form 941.
- If your total payroll taxes for the “look back period” were $50,000 or less, you are a monthly depositor.
- If your total payroll taxes for the “look back period” were more than $50,000, you make deposits on the semi-weekly schedule
How to Compute Failure to Deposit Penalty or Penalty for Late Payment of Payroll Taxes?
The FTD penalty is based on the delay as well as the delay after a notice of demand is served by IRS to a defaulter. The deposit penalty rate is applied as under:
- 2% of the unpaid deposit for payments that are 1 to 5 days late
- 5% for tax payments that are 6-15 days late
- 10% for deposits that are more than 15 days late or made within ten days of receiving the first IRS notice requesting a tax payment
- 15% for deposits not received within ten days after receiving the first IRS notice demanding payment
Is the Interest Computed apart from Failure to Deposit Penalty?
As a general rule, the IRS charges interest on any amount of tax due but not paid. This is a completely separate charge. The interest rate is as per the published rates on a quarterly basis. In recent times, the interest rate on late payments has been around 3 or 4 per cent. It should be noted that even though the penalty for late payment may be waived, the interest on the delinquent tax payment continues to accrue even if your penalties are waived. Here is the interest calculator on failure to pay tax.
What happens if IRS Finds Your Failure to Deposit Taxes Willful?
If the IRS determines that you willfully failed to remit payroll taxes, they may also assess the more severe Trust Fund Recovery Penalty (TFRP). You can be personally liable for paying the TFRP if you are a person responsible for collecting and submitting payroll taxes who willfully fails to do so. This penalty is equal to 100% of the unpaid trust fund taxes. Check out our trust fund recovery penalty calculator.
Can You Apply for Waiver of the Failure to Deposit Penalty ?
There are two avenues for a taxpayer who is imposed a deposit penalty.
First is an application under the first-time penalty abatement waiver for the failure to deposit penalty. Second is a common way to show the IRS, that there was indeed a reasonable cause for the delay in depositing the tax. Thirdly, the law allows the IRS to remove the deposit penalty if: (1) the penalty applies to the first required deposit after a required change to your frequency of deposits, and (2) you file your employment tax returns by the due date.