Payroll Tax Penalties: An FAQ for 2022

Payroll taxes have always been complicated, but they’re that much more difficult to navigate in 2022. Changes prompted by the pandemic provide both new opportunities and risks for modern employers.

As always, awareness is essential. To help, we’ve answered some of the most common questions about payroll tax penalties in 2022.

What is the Trust Fund Recovery Penalty?

If your business withholds payroll taxes but fails to submit these funds to the IRS, you may be assessed the Trust Fund Recovery Penalty (TFRP). This is typically issued to responsible parties who willfully avoid collecting or paying employment taxes. The total penalty equals that of the unpaid tax.

In light of COVID relief, it’s important to remember that the TFRP applies to the employee’s share of payroll taxes. The employer’s portion may have been impacted by relief programs such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

How do you know if you owe payroll tax penalties?

The IRS sends notices to employers who owe penalties such as Failure to Deposit. If you’re assessed the TFRP, you may receive IRS Letter 1153. You will need to respond within ten days or file an appeal within sixty days of the date mentioned in the letter.

Who is responsible for the TFRP?

The term “responsible party” can refer to many individuals. While CEOs are often held accountable, the TFRP could also target others who handle payroll taxes, such as accountants, bookkeepers, or even third-party payroll services.

Does the IRS offer penalty relief for payroll taxes?

In 2020 and 2021, the IRS offered relief to select employers impacted by the pandemic. Under this program, employers were able to claim refundable credits designed to offset payroll taxes for family leave wages or actual wages paid during government-imposed shutdowns.

Penalties were not assessed when employers took advantage of this opportunity. Limited relief remains available in 2022 for those who paid at least 70 percent of their taxes for 2020 and 2021.

Proper preparation is key to avoiding payroll tax penalties in 2022. The experts from the Highland Tax Group can help. Reach out today to learn more about your options for preventing penalties and otherwise improving your business tax situation.