For many small businesses, taxes are a distraction. You run your business; you deal with your customers, vendors, suppliers and employees. Taxes, while a necessary evil, are not something you want to spend too much time thinking about, as that is why you hire an accountant and/or a tax attorney. Maybe tax payments become something akin to wallpaper; they are there, but you often do not pay much attention to them.
And if your finances are tight during a month or a quarter, you may find it necessary to stretch your cash flow to meet your most pressing needs, which you may determine not to include your payroll tax. It may not be noticed, since taxes will not be filed until sometime next year, and by then, you assure yourself, you will have caught up all of the payments.
Unfortunately, the Treasury Inspector General for Tax Administration (TIGTA) has calculated that by mid-2012, employers owed $14.1 billion in payroll taxes. The IG has criticized the Internal Revenue Service for it slow action at collections in this area. A significant number of these Trust Fund Recovery Penalty (TFRP) cases took more than 500 days for processing.
The concern for a business is the TFRP is typically 100 percent of the delinquent tax payment. This means your tax penalties could more than double the total amount owed to the IRS.
Given the IRS can use its full panoply of collection powers, like tax liens and seizures to recover these funds, and go after your personal assets, any business owner who has missed paying their payroll taxes should remit payment as soon as possible and obtain legal help to determine how to best deal with these potentially devastating tax penalties.
Source: Fox Business, "Payroll Tax Penalties: Make them Your Priority," Bonnie Lee, June 6, 2014