IRS Payroll Penalties
The Internal Revenue Service requires employers to withhold Medicare tax, federal income tax and Social Security tax from employees' paychecks. The employer is responsible for filing the necessary tax forms and paying the withholding tax to the IRS. The employer alone is required to pay federal unemployment, or FUTA, tax. An employer can incur penalties for failing to comply with IRS payroll tax guidelines.
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Reasons
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Employers that fail to withhold and pay employment taxes do so for a number of reasons. This includes using the IRS as a bank by borrowing the money for a little while with the intention of paying it back in the future, collecting the taxes and using it to bail themselves out of financial problems instead of forwarding it to the IRS, or because of philosophical objections to the tax law, which the courts continue to reject. Whatever the reason, the IRS expects all employers to withhold and pay employment taxes.
Civil and Criminal
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Noncompliance with payroll tax laws can lead to the IRS auditing the business and filing a tax lien against the employer's property to secure the unpaid debt. It can also criminally investigate the employer and recommend that the employer be prosecuted for purposely trying to avoid paying and filing employment taxes. The IRS says that in the past, these actions have resulted in 117 individuals being imprisoned in a federal facility, a halfway house or home detention for related criminals.
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Deposit Penalties
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Employers are required to deposit payroll taxes according to the schedule and method the IRS mandates. Failure to deposit taxes appropriately can lead to penalties. Deposit penalties depend on the tardiness of the deposit. Deposits made one to five days late are subject to a 2 percent fee of the unpaid tax; six to 15 days, 5 percent; 16 or more days, 10 percent; amounts still unpaid after the IRS sends its first notice requesting payment, 15 percent; deposits subject to the Electronic Federal Tax Payment System, or EFTPS, but made otherwise, 10 percent; and deposits made at an unauthorized financial institution, paid with a tax return or directly to the IRS, 10 percent.
W-2 Fees
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Employers are required to issue employees a correct W-2 by January 31 of each year. It files the W-2 with the Social Security Administration by February 28 if filing by paper, and by March 31 if filing electronically. Employers that fail to file a correct W-2 by the deadline can face penalties, which depends on when the employer actually files the form. The fee is $15 per W-2, for example, if the employer files within 30 days of the deadline, $30 per form if it files more than 30 days after the due date but by August 1, 2011; and $50 per form if it files after August 1, 2011.
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