Penalties for Delinquent Payroll Tax Returns
It is extremely important to make sure that payroll tax returns are filed on time even if the business does not have the funds to pay the taxes. For each month or part of a month that a payroll tax return is not filed on time, there is a failure to file penalty of 5% per month of the unpaid tax due with that return. The maximum failure to file penalty is generally 25% of the unpaid tax. In contrast, if a payroll tax return having a tax balance due is filed timely, the IRS may assess a late payment penalty of 0.5% of the unpaid tax for each month the taxes are delinquent (up to a maximum of 25%). This late payment penalty can be reduced to 0.25% per month if an installment agreement is entered into.
Given the above, businesses should make certain that their payroll tax returns are filed timely. Any payroll tax returns that are delinquent should be filed as soon as possible to minimize any further failure to file penalties.