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A quick overview of payroll tax penalties

On Behalf of | Nov 17, 2022 | Internal Revenue Service

The Internal Revenue Service (IRS) assesses payroll tax penalties when employers fail to comply with their federal payroll tax obligations. The IRS can assess these penalties for a variety of reasons, including failure to deposit taxes when due, filing late tax returns and underreporting income. Payroll taxes are an important part of ensuring your business remains in compliance. 

What are Payroll Taxes?

Payroll taxes are the taxes that employers withhold from their employees’ wages and pay to the government. These taxes include Social Security and Medicare taxes. Employers are responsible for withholdings payroll taxes from their employees’ wages and for paying these taxes to the government.

What are Payroll Tax Penalties?

Payroll tax penalties are enforced when employees do not comply with payroll tax obligations. According to ADP, these penalties may include anything from monetary penalties and interest on back taxes to jail time. While the cost of tax penalties depends on factors like the size of your business, the fees you owe will generally increase exponentially the longer the payments are past due. Keep in mind that the IRS will anyone tasked with overseeing payroll taxes liable for non-compliance. 

How to Avoid Payroll Tax Penalties

There are a few ways to avoid payroll tax penalties. First, employers should make sure to deposit all withheld taxes on time. Second, employers should file their tax returns on time. Finally, employers should accurately report their income. Staying on top of tax compliance is an important part of business so consider hiring an HR specialist who can oversee your employment tax budget and keep track of compliance laws for different states if you’re working with remote employees. It’s also wise to invest in payroll software if you have the resources to do so.

If you have any questions about your federal payroll tax obligations, you should contact a qualified tax attorney or accountant for assistance.


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