If you run a business with employees, putting money aside every payday is required to stay within the IRS’s good graces. While employees pay payroll taxes through their own paychecks, businesses have to store that tax money somewhere, only to eventually send it to the IRS.
But when does a business need to pay those tax funds to the IRS? The IRS isn’t too lenient with giving flexibility about the due dates, but good payroll protocol will prevent a problem before it starts.
First of all, what to report and how to report it. The IRS requires employers to file a Form 941 every quarter. This form is used to report wages paid, the amount of withheld tax, and the payment of Social Security and Medicare taxes.
Second, when to report. Form 941 has to be filed on the last day of the month that follows the quarter that is being reported. So, the quarter spanning January until the end of March has to be reported on the last day of April.
But what if the last day of the month happens to be a weekend day? Not to worry. The Form 941 can be filed the next business day.
The penalties that the IRS can impose can be quite costly. There are two types of penalties: penalties for not filing, and penalties for not paying.
Failure to file penalties run at five percent of the unpaid tax that’s due, for every month a Form 941 isn’t filed. The penalty runs up to 25 percent.
The penalties for failure to pay runs at half of one percent of the total amount of tax owed per month. It can accumulate to up to a quarter of the total amount of the owed tax.
There’s also penalties for late deposits, which are calculated by how many days the deposit is tardy. It’s two percent for deposits that are no more than six days late, and five percent for deposits that are between six to 15 days late.
If your deposit is late by 16 or more days, the penalty rises to 10 percent. And if you get a letter from the IRS about the unpaid taxes, pay it fast, as payments made more than 10 days after the notice get penalized at 15 percent.
While the IRS penalties may be enough, there can also be penalties levied by an individual state government, such as a state’s revenue department or tax board. State penalties will just make a bad situation worse, so good payroll tax protocol is key to keeping money in a business’s coffers and not in the IRS’s.
Administering and managing a payroll system isn’t the easiest thing to do, but with the right help, penalties and additional costs can be avoided. To see what some good payroll administration can do for your business, look at our website and give us a call.
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