The IRS requires employers to make employment tax deposits. They must deposit the correct amount at the right time and in the right way. If employers fail to do so, they may face penalties.

Employment Taxes 

Employers have to deposit and report the following types of employment tax:

·        Federal income tax

·        Social security

·        Medicare taxes

·        Federal Unemployment Tax

These deposits must be sent to the IRS either monthly or on a semi-weekly schedule.

Federal employment taxes are different from any state employment taxes. Each state's tax agency handles any issues with state employment taxes.

Penalties

Failure to pay on time can result in penalties. The IRS calculates these penalties based on the number of calendar days, not working days, that a deposit is late following its due date.

The IRS supplies employers with a table of penalty amounts. For example, a deposit that's eight days late accrues a penalty of 5 percent. This means that a $1,000 deposit would result in a $50 penalty.

Employers who fail to pay will receive a notice or letter from the IRS. Employers will generally receive a CP220 Notice or a CP504J Notice to inform them of a missed deposit. Ten calendar days after receiving the first notice, the penalty rises to 15 percent. 

The penalty for that $1,000 missed deposit is now $150.

In addition to the penalty, the IRS charges interest on any late deposits. Interest grows until an employer pays the balance in full.

Removing or Reducing a Penalty

The IRS may reduce or remove a penalty if an employer can show:

• They acted in good faith
• They can show reasonable cause for why they were unable to meet their tax burden

The IRS can only remove interest if a penalty is reduced or removed.

Disputing a Penalty

If employers disagree with a penalty, they can contact the IRS and explain why the agency should reconsider their decision. Employers should include:

·        Any relevant documents

·        A copy of the notice or letter

·        A list of penalties an employer wants the IRS to reconsider

·        An explanation of why each penalty should be removed or reduced

If you're an employer and the IRS believes you failed to deposit employment taxes, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.