If you own or operate a business with a payroll, you’re responsible for withholding a certain percentage of each employee’s wages and sending it to the IRS. Payroll taxes can add up quickly, and if your business falls behind, catching up can be a challenge.
If you have past-due payroll taxes, you may already be dealing with aggressive collection actions from the IRS. Fortunately, there are several payroll tax debt relief options that may help you protect your company’s finances and future.
In-Business Trust Fund Express Installment Agreement
The IRS allows many businesses and individuals who are behind on their taxes to catch up through installment agreements. An In-Business Trust Fund Express Installment Agreement (IBTF-Express IA) is a specialized installment agreement designed for small businesses with payroll tax debt.
This option may not be right for every business owner, but if you qualify, it can help streamline the process of payroll tax debt relief. Some of the key eligibility criteria include:
- You owe $25,000 or less (if you owe more, you can pay down the balance to qualify)
- If you owe $10,000–$25,000, you must enroll in a direct debt agreement
These agreements set a time limit on how long you have to pay. To qualify, you must be able to pay the debt in full by the earlier of these two times:
- 24 months
- The Collection Statute Expiration Date (CSED)
If you aren’t eligible for an IBTF-Express IA, you might still qualify for a different payment plan. Our team can discuss your tax issues with you and determine whether an installment agreement is your best option for payroll tax debt relief.
Offer in Compromise
In some cases, the IRS may let you settle your tax debt for less than you owe with an offer in compromise (OIC). However, when it comes to payroll tax debt relief, offers in compromise come with potential complications.
Payroll taxes are generally divided evenly between employers and employees. Your business pays half directly to the IRS and holds the other half (the portion technically paid by the employee) in trust before sending it to the IRS. This half is sometimes called the “trust fund” portion of a company’s payroll tax liability.
The IRS doesn’t allow businesses to settle the trust fund portion of their tax liability for less than they owe. However, it may permit you to settle the other portion of your payroll taxes, as well as any penalties that were personally assessed against you.
It’s important to note that securing an offer in compromise isn’t as easy as offering the IRS a certain settlement amount. The process involves sending detailed financial documentation. Negotiating an OIC is almost always complicated, so it’s best to work with an attorney experienced in payroll tax debt relief.
Penalty Abatement
In limited circumstances, the IRS may reduce or forgive tax penalties if the failure to pay the tax was due to reasonable cause. Penalty abatement won’t erase the tax debt you owe, but it may reduce or eliminate the balance of any penalties assessed against you.
The Consequences of Failing to Pay Payroll Tax
If you’re having trouble meeting your payroll tax obligations, you should act quickly. The IRS imposes penalties on businesses that don’t follow the law, and those penalties can be severe. Here are some of the potential consequences:
Failure-to-Pay Penalty
If you don’t pay your payroll taxes on time, you may be assessed a failure-to-pay penalty. This is usually 0.5% of your unpaid balance for each month the taxes go unpaid. However, the total penalty is capped at 25% of the amount you owe.
If you have an established installment agreement and pay as agreed, the failure-to-pay penalty will be reduced to 0.25% per month.
Trust Fund Recovery Penalty (TFRP)
The failure-to-pay penalty may seem low, but it can add up over time. Even so, it’s dwarfed by the trust fund recovery penalty. The IRS only assesses the TFRP when it believes a company has deliberately failed to collect and pay the trust fund portion of its payroll tax liability. The TFRP is 100% of the unpaid taxes.
Criminal Charges
If your company’s failure to pay was willful (or the IRS believes it was), you could be hit with criminal charges and face fines, imprisonment, or both.
Liens and Levies
In some circumstances, the IRS may seize or place liens on your business assets to cover your unpaid taxes. The agency may also use a bank levy to take funds directly from your company’s bank account. Seeking payroll tax debt relief sooner rather than later can reduce your risk of facing these serious penalties.
Get a Lifeline for Payroll Tax Debt Relief
Having trouble meeting your company’s tax obligations can be stressful, and dealing with collection actions and penalties from the IRS can make it even more so. If you feel like you’re drowning, Andrin Tax Relief is here to be your lifeline.
Our enrolled agents have helped countless Illinois and Minnesota business owners tackle their tax issues head-on. Contact us today to learn how we may be able to help you find the payroll tax debt relief your company needs.
