Payroll Tax Debt Relief

Payroll tax relief intends to help businesses owing payroll taxes or any taxes that should have been withheld from employees’ paychecks. Whether such taxes are unpaid because of error, inability to pay due to financial troubles, or a business closing down, people still need to pay what they owe to the IRS.

Several tax debt repayment options exist to help pay off payroll tax debt. All business owners must withhold an appropriate amount of funds from their employees and pay these amounts as taxes to the IRS.

Employees rely on their employers to withhold the proper amount from their paychecks and send it to the right channels. If a business owner fails to file and pay off payroll taxes, the debt can be legally considered theft from the employees and may result in aggressive acts by the IRS.

Anybody struggling to pay payroll taxes will want to contact an experienced tax debt relief expert for assistance finding a resolution to their problems.

IRS payroll debt forgiveness may be negotiated to help a business that owes payroll taxes or any taxes that should have been withheld from its employees' paychecks. Penalties for failure to pay payroll taxes could include a failure to file penalty, a Trust Fund Recovery Penalty, interest on the late taxes, and the actual taxes themselves.

The IRS, a state tax agency, or a local entity could send you a letter if you miss the payment deadline for when payroll taxes due, you miss a deadline for filing your payroll tax reports, the amount paid is short or is over what the IRS or another tax agency calculates as being due, the agency notices a discrepancy on your payroll tax returns and needs an explanation, you are selected for an audit, or you fail to respond to previous correspondence. When you do not respond to initial letters from the IRS, the IRS or another tax agency may apply liens, levies, garnishments, or seizures to collect payment.

Yes, the length of time that the IRS is allowed to collect a tax debt is usually limited to 10 years based on the statute of limitations for IRS collections. After the 10 years expire, the IRS can write a debt off as being a bad debt.

Attempting to wait out such a period may not necessarily be the most viable strategy for resolving a tax debt. You need to remember that IRS enforcement actions can include levying your salary or bank accounts or seizing your property to satisfy a tax debt.

If you are struggling to pay a tax balance and enter into an installment agreement, but some kind of illness or job loss puts you in danger of defaulting on it, you must contact the IRS to explain the change in your ability to pay. If the cause is determined to be reasonable and you cannot make payments without compromising your basic living needs, the IRS can then work with you to lower your payments or may even put that debt into currently not collectible status.

If a tax debt is currently in a not collectible status, the IRS reviews the situation annually, and when circumstances do not change, the debt will remain in such status until the statute of limitations expires. At such a point, the IRS can write off the remaining balance.

The statute of limitations on the collection of unpaid federal payroll taxes is 10 years. The clock will begin on the date your payroll tax return is filed, which is also the date that the tax is assessed.

When you file your payroll tax return late, your statute will also start late. This means that if you file your 2020 payroll return in 2022, your collection statute will run until 2032 instead of 2030.

Many federal payrolls have to be submitted quarterly, meaning there are quarterly statute limitations, and a separate statute applies for each unpaid quarter. When a person fails to file a payroll tax return, the IRS can perform its own substitute tax assessment under IRS section 6020(b).

In such cases, the 10-year collection period will begin on the date the IRS assesses the 6020(b) balance. Such substitute assessments are based either on payroll tax information previously provided on a tax return or payroll tax information comparable to other companies within the same industry.

Many 6020(b) assessments are typically inaccurate. A person can adjust 6020(b) assessments by filing their own payroll tax returns for the periods assessed by the IRS, but this will also restart the collection statute to begin as of the date you file an original return.

Yes, certain employers who cannot pay their employment taxes may be able to settle their tax debt with the IRS for less than the full amount they owe. To apply, employers must submit Form 656, Offer in Compromise (OIC), and supporting documents proving their eligibility.

The IRS will usually make a decision based on an applicant’s income, expenses, asset income, and ability to pay. The IRS will typically turn down an OIC offer if a business can pay the full amount through an installment agreement.

Employers use Form 941 to report income taxes, Social Security tax, or Medicare tax withheld from employees’ paychecks and pay their portion of Social Security or Medicare taxes. Employers are required to withhold FICA taxes, or Social Security and Medicare taxes, from their employee wages and pay the employer portion, which can vary depending on payroll size, although FICA taxes are commonly paid monthly or semi-weekly and are reported quarterly via IRS Form 941, Employer's Quarterly Federal Tax Return.

The IRS will penalize a business that deposits its payroll taxes late or files its Form 941 late. If a required payroll tax deposit is one to five days late, the IRS charges a penalty of two percent of a required payment.

Any deposits made between six and 15 days late have a five percent penalty, and a 10 percent penalty for deposits more than 16 days late, plus interest. If you file your Form 941 late, the IRS will impose a penalty of five percent per month, or the partial month, up to a maximum of 25 percent.

Payroll tax credits will decrease the amount of payroll taxes that a business owes. Payroll taxes that are imposed on employers and employees include income tax, Social Security, and Medicare taxes.

Small business payroll tax credits will reduce the amount that employers contribute to such taxes. Employers and employees normally split responsibility equally for social security taxes, which total 12.4 percent of employee earnings.

Certain payroll tax credits can reduce or even eliminate an employer’s share of these taxes. Tax credits may include nonrefundable tax credits that allow businesses to reduce their tax bills up to the amount they owe or refundable tax credits that allow businesses to receive refunds if credits exceed the amount they owe.

The IRS lists tax credits for both individuals and businesses. If a business is eligible for more than one credit, it will have to file a Form 3800, General Business Credit, on which each of the credits will be added up to calculate the total value of all tax credits.

The Payroll Tax Credit is also known as the Employee Retention Credit, which was a portion of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and intends to help businesses remain solvent during the COVID-19 pandemic. The Employee Retention Credit is considered a fully refundable tax credit for employers that is 50 percent of any qualified wages that eligible employers pay their employees.

The Employee Retention Credit will apply to qualified wages that are paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to every employee for all calendar quarters will be $10,000, meaning the maximum credit for eligible employers for qualified wages paid to any employee is $5,000.

In terms of the Employee Retention Credit, eligible employers are considered employers that carry on a business during 2020 that fully or partially suspended operation during a calendar quarter in 2020 because of orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19, or saw some significant decline in gross receipts during a calendar quarter. Any significant decline in gross receipts will begin with the first calendar quarter in 2020 in which an employer’s gross receipts ended up being less than 50 percent of the gross receipts for the same calendar quarter in 2019.

When you need help navigating payroll tax issues, make sure you contact a reputable tax debt relief professional.