Cash flow is tight, payroll is due, and you don’t have enough money left to make your business’s IRS Form 941 taxes deposit. Failing to pay your employees or your taxes is illegal – what should you do?
First, don’t ignore the problem or stop filing returns. Payroll tax problems can escalate quickly, and the IRS takes unpaid employment taxes seriously.
Keep Filing and Stop the Problem from Growing
Even if your business cannot pay everything it owes, continue filing accurate Form 941 returns on time. Late filing can create additional penalties on top of the penalties and interest already associated with late tax payments and deposits.
Just as importantly, make current payroll tax deposits whenever possible. Repeatedly accumulating new Form 941 liabilities can make resolving the older debt much more difficult.
Your immediate priorities should include:
- Filing every required Form 941 on time
- Making current federal tax deposits
- Determining exactly how much is owed for each quarter
- Reviewing cash flow and available business assets
- Avoiding unnecessary payments to other creditors while trust fund taxes remain unpaid
- Getting professional help before the balance continues growing
Why Are Unpaid Form 941 Taxes So Serious?
Part of your payroll tax liability includes money withheld from your employees’ wages. The government considers those amounts trust fund taxes because the business is holding the money for the United States.
So why do these taxes matter as trust fund taxes? If those taxes aren’t paid, the IRS can investigate whether certain owners, officers, employees, or other individuals should be personally liable for the Trust Fund Recovery Penalty (TFRP). The penalty can equal 100% of the unpaid trust fund portion of the tax.
This means you could be personally responsible for the full amount of the business’s unpaid taxes. That can turn a business tax problem into a personal financial problem.
Why Do I Need to Address Form 941 Debt Early?
We’ve talked about this a bit already, but payroll tax delinquencies are among the issues that can lead to field collection and Revenue Officer involvement. This is an IRS official knocking at your door, metaphorically and potentially literally showing up at your business.
Depending on your circumstances, possible resolutions may include an installment agreement or another collection alternative. The right strategy depends on the amount owed, your current compliance, and your business’s financial condition.
Our team of tax professionals at Highland Tax Group can review your payroll tax situation and help you develop a strategy to address the IRS before the problem worsens.