How Does the IRS Assess Penalties On 941 Back Taxes Owed?

As a business owner, you may be required to withhold federal taxes from employees and file IRS Form 941 on a quarterly basis. With Form 941, you report on the number of employees who currently work for your business, the total wages paid to those employees, and the amount of taxes withheld. What happens if you file but don’t pay withheld taxes? We explore IRS penalties for 941 back taxes below:

Trust Fund Recovery Penalty

Internal Revenue Code (IRC) section 6672(a) mandates that individuals can be held liable for their failure to collect or pay required employment taxes. This policy is known as the Trust Fund Recovery Penalty (TFRP). TFRP typically applies to responsible parties who willfully fail to pay employment taxes. Penalties are determined based on the amount of unpaid taxes withheld, as well as the employee’s share of withheld FICA taxes. In short: if you fail to pay up, expect a TFRP equal to 100 percent of the unpaid taxes, as well as interest that begins accruing on the due date.

Interest on Payroll Tax Underpayment

Penalties for underpayment of payroll taxes can vary slightly from one year to the next. For example, interest on underpayment totaled 3 percent between October 2011 and March 31, 2016. In April 2016, however, the interest rate increased to 4 percent. Either way, interest can add up quickly.

Failure to pay assessed penalties or interest could lead to adverse action from the IRS. Thankfully, it may be possible to make arrangements with the IRS. Don’t wait for interest to accrue; work with a trusted tax professional to get a handle on your situation.

If you failed to pay employment taxes on time this year, it’s not too late to reverse course. Look to the Highland Tax Group for much-needed assistance. Call 720-398-6088 today to learn more.