Let me first elaborate on the “failure to deposit penalty” which is imposed on employers not paying payroll taxes within the scheduled time. Internal Revenue Code makes Employers responsible for withholding tax from their employee’s paychecks and also their contribution to Social Security, and Medicare taxes. After deduction of these amounts, one needs to deposit them with the Treasury according to the deposit schedule. If you fail to deposit the amounts as per schedule, you will be charged an amount – what is called Failure to Deposit Penalty .The failure to deposit penalty accrues even if your tax deposits are just one day late.
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
What is failure to deposit interest ?
Apart from the penalty, there is statutory interest charged on the amount that was not deposited to the treasury. Interest for the failure to deposit taxes will continue to accrue on your late tax payments until you pay the amount due in full.
How is the IRS Failure to Deposit Penalty computed?
There are two major components of failure to deposit penalty computation- the number of days of delay in deposit and the rate of penalty.
There is a four-tier structure, as given below, for deciding what rate of penalty shall be applied in your case:
- 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
Also, deposits not made by electronic funds transfer are subject to the 10% penalty rate.
Check our latest failure to deposit penalty calculator.
How is the Failure to Deposit Interest Computed?
The computation of interest is simple – no of days of delay in deposit multiplied with the interest rate for the quarter as published by the IRS Recently, the interest rate on late payments has been around 6 percent for the first quarter of the calendar year 2019. Refer IRS published rates. Check out the interest calculator.
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 the Failure to Deposit Penalty or Interest Be Waived or Reduced?
The answer is a definite Yes.You can apply to IRS for waiver of FTD penalty citing reasonable cause for such failure or invoking the first time penalty abatement for the failure to deposit penalty. IRS will check if conditions for IRS first time abatement or waiver -like you must not have incurred other significant penalties within the past three years or your company or firm must be in payment and filing compliance-are fulfilled.